As we enter 2025, the Tucson industrial real estate market is showing signs of continued resilience amid broader national trends. Let’s take a closer look at the current state of Tucson's industrial sector, focusing on vacancy rates, user and investor property values, increased sub-leasing, construction activity, major projects, and national industrial real estate trends that may influence the market.

Vacancy Rates: A Tight Market

Tucson's industrial real estate market remains relatively tight, with vacancy rates hovering at historically low levels but higher than 2021-2023 levels. As of late 2024, vacancy for industrial properties in Tucson is around 5-6%, a figure that has stayed fairly consistent over the past year. Most of this vacancy lies within the 100,000 SF + bay market. This reflects a broader trend seen in the Southwestern U.S, where demand for industrial space outpaces supply but demand for big bay has slowed.

Construction Activity: 1,000,000 SF +-

In 2024 we had more industrial square footage demolished and redeveloped than built. Despite low vacancy rates, construction in the Tucson industrial real estate market has been increasing to meet demand. Developers have responded to the growing need for space by initiating several major projects breaking ground in November of 2024 and set to be completed in the second half of 2025. Around 1,000,000 SF of spec industrial is slated to be completed in 2025.

These projects are focused on the mid to larger bay size range. Small bay construction costs remain high and lease rates will have to double to justify new construction. While materials costs have dropped, labor costs continue to climb. Overall, construction costs have seemed to plateau.

Demand Drivers

We expect demand to remain similar to 2024 trends focusing around e-commerce, mining, defense, aerospace and the ancillary businesses that support the multifamily and SFR new construction market.
One unexpected demand driver is re-development. While industrial is highly sought after, retail and multifamily values are significant higher. We will see further re-development demand along with eminent domain demand in the southern market as the state starts to expand I-10 near Country Club and I-10 and add a new on/off ramp.

Sub-Leasing Increases

While vacancy remains low, we have seen distress from tenants over the past 18 months. Distress in the form of bankruptcies, defaults, and increased sub-leasing. Most of the distress stems from increases in materials and labor costs. Consumer demand remains mostly steady, while dipping in some aspects of the economy. Think big ticket items like furniture and outdoor improvements for example. 

Max Fisher’s significant Q4 2024 transactions;
1455 W River - $3,850,000 Sale – Represented Buyer, Escalante Concrete – 20,000 SF
3970 S Evans Road - $1,725,000 Sale – Represented Buyer, Ninyo & Moore Geotechnical – 11,443 SF
4261 S Country Club – Represented Landlord, 420 Aviation LLC – 24,380 SF
6640 S Bonney – Represented Tenant, Sia Botanics – 9,240 SF
 
Total transaction volume for 2024 – 78 Leases & Sales

Escalante Concrete purchased a 20,000 SF concrete tilt commercial building on a little more than 3 acres to expand current operations. For more than 35 years, Escalante Concrete Construction has provided outstanding service, workmanship and the highest quality placement of both residential and commercial concrete in Southern Arizona.

Max Fisher, BRD Realty represented the buyer and Greg Furrier, PICOR represented the seller, a subsidiary of 4d Properties.

Max Fisher, BRD Realty represented three lab transactions totaling 24,000 SF in September. The first, Ninyo & Moore Geotechnical and Engineering purchased an  11,443 SF concrete tilt industrial building at 3970 S Evans Tucson, Arizona for $1,725,000. Time Healy and Abi Robles of CBRE represented the seller, Znarf LLC.

Listings newly listed by Max Fisher, BRD Realty

Torch Props purchased equity in 96,000 SF of light industrial and business park property. Max Fisher, BRD Realty will handle the leasing and Eileen Lewis, Torch Props will now takeover the management.

Oracle Towers and Palmdale Industrial are the two properties that make up 96,000 SF and more than 40 tenants. Most bays have office/warehouse layouts with grade level roll up doors. Oracle Towers also has some office and retail build outs with retail frontage on North Oracle Road.

Tucson's owner occupied market, also known as "user buildings" is as strong as it's ever been. A lack of inventory combined with strong demand from business owner's wanting to own their own real estate has continued to strengthen the industrial/warehouse user market.

With construction costs for industrial above $200 per square foot and very few sub 10 acre industrial parcels available, buyers are still flocking to existing buildings rather than taking the leap and building ground up. Most user buyers are looking for fenced yards in addition to a building to store materials or fleets as they are having difficulty finding buildings with fenced yards for lease.

We are seeing most user buyers pay cash and often seeing buildings on the market for less than a few weeks and often with multiple buyers. Another factor affecting the user market is the re-development of existing buildings such as the new Casino at Grant & I-10 and the new interchange at Country club and I-10. There is more demolition than construction of industrial buildings in 2024. We expect more construction in 2025 but for multi-tenant, for lease industrial buildings with bays more than 10,000-20,000 SF.

The building above was just sold for $1,7250,000 to Ninyo and Moore Engineering. Max Fisher, BRD Realty represented the buyer and Tim Healy, CBRE represented the seller.

Pre-2020, Tucson industrial leasing would slow down in the summer. Leasing remains strong although not like 2021 levels with multiple tenants bidding on the same vacancies. The leasing demand seems to be coming in waves and this summer packs strong demand. In June alone, I closed 9 transactions.

Overall vacancy has increased while the vast, vast majority of vacancy remains in bigger bays. Vacancy below 50,000 SF warehousing remains at all time lows while more industrial product is set to be demolished and re-developed this year than is built. Demand is robust and diverse, ranging from housing market materials suppliers and subcontractors to manufacturing, distribution and lab space. The biggest drivers for Tucson’s economy right now are housing market construction, mining and defense.

We have seen a lull in the manufacturing market as demand seems to be softening as manufacturing jobs also soften. Demand in the Northwest market remains the strongest for bays less than 20,000 SF while demand for bigger bays remains the strongest in the Palo Verde and Tucson Airport sub-markets.
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One interesting new trend that we are noticing is demand or lack of demand related to crime. Vandalism, drug use and burglaries are on the rise and tenants are leaving buildings where they experience crime and are moving to more desirable areas. Historically, some of the areas had little to no crime. Ironically, heavier industrial markets are seeing less crime and more demand from tenants relocating from higher crime areas. 

158 acres zoned heavy industrial next to the Port of Tucson, Amazon and new 200,000 SF+ Becton Dickson. Property includes water rights and engineering plans. 

The land has been subdivided into smaller 1-3 acre lots.
Electric is at the lot line and tests have been conducted for septic. 

This is a great opportunity for an investor to continue with the subdivision and sell off improved lots, develop or build to suit for one large user. Recent sale for a 1.5 acre industrial lot at Valencia/Kolb was $5 per SF. 

Shaded acreage has a recorded development easement so development is limited but can potentially be used as industrial outdoor storage, solar, self storage. Verify with Pima County development services.

Click below to download the brochure

1.13 acre industrial parcel fully fenced and paved in the highly sought after Northwest market now for sale.

-Less than 1 mile to I-10
-Industrial zoning, City of Tucson
-3 phase power
-Extra covered area with two shipping containers included

2023 W Price St Tucson AZ 85705

In most markets throughout the US, industrial vacancy is on the rise but it’s important to understand which part of the market vacancy is rising in. Over the past 5 years during this development boom, the vast majority of industrial was built in the large bay markets, 100,000 SF+ bays. In markets that don’t have excess land to build, for example port markets, not as much product has been built. With markets that can keep expanding into the suburbs, more and more concrete tilt warehousing has been built.

Unfortunately the small-medium bay market has been left out despite massive persisting demand for small-medium bay warehouses. Vacancy for small-medium bay has actually decreased in most markets despite overall vacancy increasing. Lease rates for this mid range warehousing have also increased along with user sale prices.

As vacancy for small-medium bay remains historically low, users buy land and build because why buy an existing warehouse for $180 per square foot when you can build exactly what you need for $200-300 per square foot?

While some markets have increased vacancy, the vast majority of that vacancy is with big bay. The Tucson industrial market as a whole remains under-built and under-supplied.

​April’s CPI and PPI both rose for the second straight month. Currently, 3.5% CPI is above the fed’s target and the markets aren’t pricing in the rate cuts that were expected over the past 6 months. The ten year treasury ended 2023 below 4% and after the last CPI report, the ten year is now above 4.5%. Expect investment sales volumes to remain similar to those of 2023.

Here’s the good news, with inflation on the rise again, we can expect the Tucson industrial market to remain strong and lease rates to continue to increase. 2024 could be the year where we see more industrial buildings get demolished, than delivered. Meanwhile, demand remains strong throughout the industrial market.

The sticky part of inflation for Tucson is with construction. Many developers have put their plans to build on hold, not because of interest rates or lack of tenant demand, but mostly due to the rise in construction costs. Last month a Tucson residential subcontractor who does lots of work for the national homebuilders told me that they just had their biggest month in terms of new unit contracts, almost doubling their March 2023 volume. The subs are still busy and despite industrial construction slowing, construction costs remain elevated mostly due to the increase in residential construction and lack of skilled trades labor.

With most recent projects, I’ve seen construction costs increase for smaller warehouses (30,000 SF and below) and costs come down just a little bit with bigger bay, concrete tilt construction. While materials have come down in pricing, labor costs continue to rise.