​5 Tucson Real Estate Trends in 2020

 

1. Logistics and last mile distribution will transform the commercial market like we’ve never seen before, spurring industrial activity and leaving retail buildings vacant or even turning retail buildings into last mile distribution warehouse hubs. Recent closures of Target on Broadway, Office Depot on Broadway, Sears at Park Place and now the Tucson Mall, multiple Frys, multiple Walgreens, and many other retail businesses are a side effect of the prospering Ecommerce and industrial market. One ​predictor that is often very reliable is watching what is happening in larger metropolitan cities such as LA, New York, Seattle. This is already happening in those cities and we usually lag about 2-3 years when it comes to these types of trends.  GoPuff, Custom Back Office Solutions, and amazon have set the stage for distribution trends. 
2. The land market will begin to pick up as retail begins to transform and new companies seek specialized buildings (think Dutch Brothers, Catepillar Headquarters, Hexagon Mining, PVB Fabrication, Amazon). As new tech companies and retailers enter the Tucson market, they often need specific building characteristics such as high ceilings, modern architecture, etc. Older building don’t have the characteristics that these tech and distribution companies need so land will start to sell for new builds.
3. Larger buildings will begin to lease and sell after years of limited activity. There are lots of rumblings out there with 50,000+ SF companies out in the market, primarily the industrial, office and R&D market. Typically when I feel activity pick up, a few start to pop within a year. There is activity in this size range which is a great sign for our local economy. Most of this larger activity relates to mining, R & D, and defense related industry.
4. Mining will continue to spur growth in the office, industrial, and housing market. Just within the past two months I have seen a massive increase in mining related companies in the Tucson market. Existing companies expand, new companies looking at relocating or expanding to Tucson. Caterpillar, Hexagon, and Modular Mining set the stage and now we are seeing more activity. It’s just a matter of time before these new companies start inking leases and contracts. This activity will also spur growth in the housing market as higher paying jobs become more readily available in the Tucson market.
5. Affordable housing will continue to become an issue due to labor and materials costs. It simply does not make financial sense to build affordable housing with affordable rents with labor and materials costs so high. Just to put this whole building situation in perspective, I was visiting with a client a week ago and he had a brand new warehouse built in 2007 for $90 per square foot. Today that warehouse would cost at least $180 per square foot to build. Building costs have increased substantially and skilled labor is tough to find so potential solutions could be public/private partnerships, increased development where there is less expensive land (Marana, Vail, etc), and/or increase building supply across the board regardless of whether or not the housing is “affordable”. This would increase supply, effectively driving rents and purchase prices down. Towns and counties need to be the pat on the back when it comes to any type of housing development so we can increase supply which will decrease the cost of housing. 

 
 
Something to watch. We have a very limited housing supply. I believe this is mostly because the millennial generation recently jumped into the housing market so now we have the millennials AND baby boomers AND those in between are active in the housing market. Supply will become more available as the baby boomer generation ages. Values of housing may drop substantially as baby boomers exit the housing market and millennials fail to reproduce like previous generations. 

Photo is 12 Acres of the remaining Tucson Airport Commerce Center industrial land ($1,830,000) listed by Rob Glaser and Max Fisher of Cushman & Wakefield | PICOR. Other parcels are owned or leased by Chamberlain (Liftmaster), Eastgroup, Custom Back Office Solutions, Diamond Ventures, LKQ, Walmart, DR Horton, Intuit, and Keystone.