Tucson Demand Predictions:
Tucson Supply Predictions:
Office: No change
Migration is the largest economic spur right now for Tucson. Migration from densely populated cities will continue to increase. Why? 3 reasons.
1) Employees paying thousand of dollars per month on rent in cities like San Francisco, New York, and Seattle are working remotely but making the same salary. They are relocating to more affordable areas that are not as dense and less expensive. The Income tax rate is also very attractive.
2) COVID has sparked concerns for those living in densely populated cities as COVID has impacted densely populated areas significantly more than more spread out areas like Arizona.
3) Younger people like the options that Tucson and Arizona as a whole has while other cities are shut down. Arizona is not shut down to the degree that New York and California areas are and Arizona has plenty of outdoor activities for younger people and retirees.
Arizona as a whole outpaces the rest of the country by far when it comes to unemployment rates, economic growth and real estate activity.
Lease rate and sale price predictions:
Opportunistic markets based on 2021 predictions:
-Small bay industrial (trades related businesses that support the housing market)
-Medium to large bay industrial (last mile distribution and Ecommerce)
-Industrial land on the outskirts of Tucson but close to I-10
-Drive through retail
-Industrial with fenced yard (industrial materials serving the housing market)
The demand for office and retail nationwide and especially in densely populated cities will decrease substantially. The demand for office and retail in Arizona, Colorado, Utah, Texas, and Florida will remain steady without noticeable increases or decreases as the migration demand will offset the COVID effects on office and retail. We would also expect new retail development due to the quickly changing world of retail. Drive through developments for retail will increase and last mile will begin to pop up more in retail projects as DoorDash leases their first Tucson last mile distribution location and Amazon continues to expand, spurring other retailers to compete and sign new distribution related leases. I would expect the large big box retailers including home improvement and grocery stores to start leasing distribution spaces to adjust and compete with Amazon, GoPuff, and DoorDash.
Rumors of Amazon taking over JC Penney locations may be foreshadowing for last mile distribution.
The Downtown Tucson market as a whole seems to be hit the hardest as restaurants and bars face shut down procedures. The loss of income will have to be mitigated through rent structures and mitigation between landlords and tenants. We would expect the vacancy rates for office and retail downtown to increase and will take a few years to get back to 2019 levels. This recovery will be directly related to consumer confidence in dine in eating and whether or not office employees decide to work from home or the office. At this point all indicators and corporate decisions are pointing towards 40-50% of employees will work remotely through 2021 at a minimum.
The industrial market downtown felt some losses but has since been filled up from northwest demand that cannot be solved with limited Northwest supply.
Another trend that I’ve noticed is the baby boomer generation retiring. Lots of baby boomer business owners have been phasing out of the business for years but have not officially made the move. COVID was the last straw and made them take the last step towards retirement.
We are also seeing a lot of movement from companies that have historically had manufacturing in china. COVID supply chain issues have spurred companies to start looking at the US and Mexico for manufacturing alternatives. If more companies start to move manufacturing to Mexico, Tucson and Arizona will benefit from the supply chain shift and some of that money will move north into Arizona for vacationing and shopping. Sonora Mexico is positioned very well for this shift as they have the labor pool for manufacturing, the logistics position, and access to materials.
Do you know someone who has talked about moving their business to Tucson? Below are 9 reasons to move your business to Tucson.
Max Fisher, Industrial Properties Broker