37,528sf, $1,800,000 Multi-tenant industrial building located in the Eastside Research Loop industrial park. Purchase price $1,800,000. Torch Properties, LLC, through an affiliate entity, purchased 8075-8101 E Research Court from Con-Cor International. The sale closed on 5/4/2022.
Contact Max Fisher, BRD Realty for leasing opportunities 520-465-9989
Today the March inflation rate was announced at 8.5%. This comes on the heals of a 2% interest rate hike within the past few months. The market has yet to react negatively to the rise in interest rates. We can associate the lack of interest rate reaction to sustained home building, the increase in E-commerce and steady migration from California and other densely populated cities and states.
CPI per the Bureau of Labor Statistics
Energy Commodities: 48%
Utility Gas Service: 21.6%
Used Cars & Trucks: 35.3%
The industrial market has seen user building and land sales increase by 40-70% since January 2021. Industrial lease rates have also climbed significantly as recent institutional investors have entered the Tucson market, purchasing industrial property and business parks from local investors. Out of state investors are purchasing property at record low cap rates. To justify the low returns, out of state investors are raising lease rates at least 20%. There have even been reports of 80% increases from out of state investors in lease rates for incubator buildings.
Upcoming redevelopment projects of industrial property are also a key factor in the existing supply. There are many factors that aren’t showing signs of price leveling, especially the energy and housing sector. The increase in interest rates may make development of rental units more challenging for the developer/investor which can taper new builds. Recent land acquisitions are foreshadowing increased development both in the housing market and industrial market as inventory remains very low.
The labor shortages and price increases for materials and commodities doesn't help new supply as key commodities remain high. Copper remains close to $5, lumber is up more than 300% over the past 5 years, natural gas has more than doubled in the past year, and gasoline is up 66% in the past year. Cost of materials and labor shortages have put pressure on businesses, especially small businesses. This has created a trend of business owners shutting their businesses down or selling their businesses to larger corporations as larger corporations can pass the increases onto the consumer easier and absorb challenges better than small businesses can.
The war in Ukraine combined with OPEC denying production increases , and the lack of US energy production signals a very challenging future for energy prices and a tough road ahead for those businesses that consume larger amount of gasoline, diesel, natural gas and electricity. The natural gas prices are also affecting the local economy as most of our electricity is dependent on natural gas, not coal. We can expect significant electricity rate increases on a local level due to natural gas price increases and potential shortages.
So what’s next? I don’t know but I tend to be an optimist. In my opinion, Arizona is one of the best positioned states right now as migration continues, supply chain is moving from overseas to Arizona after covid shutdowns disrupted the supply chain, copper demand continues to increase as the EV, electronics and solar market grows rapidly. Global stagflation could be next on the horizon but Arizona may offset those affects with the factors listed above. The president's recent expressed interest in an executive order which would cut red tape and increase production for EV materials mining such as copper, cobalt, lithium, nickel, and graphite could significantly boost the Arizona economy.
Employees are not going back to the office like economists predicted. This lack of office demand has forced landlords to lower rates or let their buildings sit vacant.
In an effort to lease our vacant offices, we have reduced lease rates substantially to compete with other office landlords. We have noticed over the past year and a half, the office vacancy has increased drastically and now office tenants' priority is more price related rather than location or amenity related. The labor shortage has provided employees with more leverage than ever. Employees can choose where they want to work as employers face labor shortages. The work from home model does not seem to be going way any time soon.
Lately, the office leases that we have completed are leasing for less PSF compared to the warehousing rates. It seems that the office demand that does exist is either medical or from companies migrating to the region from other states.
In addition to lowering office lease rates, there are rumors of developers purchasing office buildings and converting them to multi-family housing. Phoenix is now in the works to re-zone shopping centers for multi-family as the housing shortage continues while migration from California continues to grow day by day.
Meanwhile, industrial rates continue to rise quickly as the vacancy rate is below 5% and demand is not slowing. Inflation continues to rise as materials pricing rises and incomes rise. Employers are struggling to par the market pay as salaries and minimum wage increases.
There are rumors of former copper mines re-opening as copper prices remain north of $4.00. Steel, concrete and fuel prices continue to rise quicker than the consumer price index.
Overall, the future of the Arizona economy seems much stronger compared to other states as migration, copper and lithium mining, and out of state company relocations rise.
Since the recession, land has been sluggish as vacancy hovered between 7-12%. The market now has become so tight that now land is selling left and right. Vacant airport area land is now tough to find. Cranes are tilting walls for mid to large size distribution centers for users and speculative developers. Available industrial land is now drying up with the uptick in demand.
Available existing inventory is at an all time low with vacancy below 5% and lease rates quickly rising. The Northwest market has the highest lease rates and the least amount of vacancy. Lease rates in the Palo Verde, Ajo and Airport market are quickly catching up to Northwest rates.
The amount of available buildings for sale is at an all time low. It is definitely a seller’s market, even for functionally obsolescent buildings and buildings in need of repair. As the price per SF rises, spec buildings for sale are starting to be built. We can expect that spec buildings, mostly metal will be built as price per SF pushes towards $100 per SF.
So what is causing this rush of demand? A combination of migration from California and dense cities, the Ecommerce rush, Cannabis legalization, stimulus, and the booming demand of building materials.
When will supply catch up? Supply will begin to catch up with demand as lease rates continue to rise. Rising lease rates spur speculative development. Speculative developers have already proven that development makes sense in Tucson so now we are starting to see an increase in development activity, mostly in the distribution market. We can expect to see small bay developers start building as lease rates push North of $,80 NNN per SF. We can also expect to see large distribution centers enter the market as conventional retailers shift their models towards last mile distribution.
Are we expecting a slow down? We are not expecting a slow down as long as long as migration from California and dense cities continues and Ecommerce demand continues to grow. these are the two main demand drivers right now.
Eileen Lewis of Torch Properties/BRD Realty was recently featured in BOMA’s most recent article reporting on the US industrial market, read below
Industrial Demand: A Market Revolution (boma.org)
New listing: 60 acres of industrial zoned land priced below market. Near to U of A Tech Parks, TuSimple, Raytheon, Amazon, Target Distribution, and three new cannabis cultivation sites. Click below to download the brochure.
Recent mining and mining explorations around Wilcox have increased massively. What are these mining companies looking for? Copper and lithium. Copper and lithium demand is expected to increase substantially over the next 10 years as the EV market grows quickly.
A 4 billion pound plus copper deposit has been discovered near Wilcox. The deposit is a rare formation that will NOT be mined through the typical open pit approach. The in-situ approach will be used which will be almost entirely underground and without any mining shafts. The state operating permit was issued in 2017 and the infrastrucure has been in the works for the past few years. We can expect cathode production to start this year or next year.
The initial capex is much lower than expected due to the property being purchased out of recievorship for $8,000,000. The total capex is expected to be around $50,000,000. The mine is expceted to be in production for 24 years and have a 40% IRR.
Click the link below to watch a video on in-situ copper mining
Excelsior Mining Hydrology Video 2013 - YouTube
Exceslior Mining is publicly traded and the photos are from the Excelsior website
A recent land and mineral rights assemblage has been acquired near the Wilcox Playa. Stria holds 100 per cent ownership of the Willcox Lithium project, located in Cochise County, Arizona. Acquired through the purchase of Pueblo Lithium LLC from AGR-O Phosphate Inc. in 2014, the property is comprised of 61 lode mining claims. Click below to read more about Stria and the Wilcox lithium project.
Willcox-Lithium/Arizona – Stria Lithium
As automotive manufacturers move into Pinal County, Southern Arizona is positioned perfectly with large and dense copper and lithium deposits to serve the vehicle manufacturing companies such as Lucid, Nikola, and ElectraMeccanica in Pinal County. Pinal and Maricopa are expecting to attract more EV manufacturers as there is plenty of land and power and the logistics infrastructure is primed for large scale manufacturing with rail, interstates and quick access to Mexico.
Torch Properties, a local commercial real estate investment firm, has hired Eileen Lewis, a veteran Tucson commercial property manager, in the role of Director of Property Management. Eileen will oversee and manage Torch Properties' growing portfolio of real estate investment properties in Tucson
Eileen Lewis is a long-time Tucsonan who began her career in commercial property management in 1991. Eileen has extensive experience and progressive growth in directing all aspects of property management operations. Her solid expertise in providing hands-on leadership to facilitate business growth, strategic market analysis and financial administration initiatives has made her a valued partner for her clients and tenants. Eileen’s maintains strong industry involvement with Building Owners and Managers Association (BOMA) and Commercial Real Estate Women (CREW). Her experience managing office, industrial and retail assets, along with business owner associations, has shaped her well-rounded property management experience.
Torch Properties owns and manages more than 500,000-square-feet of Commercial Real Estate in Southern Arizona.
Torch and BRD focus on purchasing value-add commercial property, multi-tenant business parks and industrial property in Southern Arizona.
BRD Realty represents the sales and leasing division of Torch Properties where Brandon Rodgers, CCIM, is owner and director and Max Fisher is the Director of Sales and Leasing.
On average, an EV requires 5-6x more copper than an internal combustion vehicle. Every year, 95,000,000 new vehicles are produced and in 2020, 3,900,000 million EVs were sold with a 39% year over year increase. Today, Tesla has the largest market cap of any vehicle manufacturer, signaling a strong shift from combustion to EV.
As the EV market and electrification of India and China grows at a quick pace, we can expect demand for copper to increase quickly. Unlike lumber, mining a new copper deposit takes decades from identifying a deposit to gaining environmental and political approval to building the mining infrastructure. In 2020, most copper mines were shut due to COVID, creating a decrease in supply. This combination of steady but tough to increase supply and mine shut downs is brewing a supply issue that should hit Q3-Q4, meanwhile the demand is increasing at the fastest rate seen in decades.
Copper prices have already risen from $2.60 per pound to $4.50 per pound year over year and we haven't experience supply turbulence yet. Large cap stocks such Freeport MacMoran have seen a 3x valuation increase as copper prices have risen within the past year, while other Arizona small cap stocks such as Hudbay and Excelsior have seen more moderate increases. Hudbay has recently identified a new copper rich deposit north of the Santa Ritas and Excelsior is drilling towards a copper rich deposit in Cochise county. In Q1 the Resolution copper mine near Globe Arizona was approved and then put on hold the following day, held up in the courts. Because Arizona has many copper rich deposits and Chile is contemplating adding a 40% copper mining tax, Arizona may see new mines opening up and/or old copper mines re-opening.
We have seen many mining exploration firms active in the industrial market and increasing their core sample storage facilities. This most likely means that copper mining companies are bullish on the future of copper prices and see lots of demand in the future.
Those who got rich in the California gold rush got rich selling picks and shovels. Copper is the pick and shovel of the EV revolution.
"We can expect more inflation from federal cash injections, panic buying, migration and increased demand. We do not see inflation slowing by the end of the year."
"Rumblings of new land acquisitions in Gila, Pinal, Pima, and Cochise County most likely point to mining exploration and potential new mines"
"The future of consumer based real estate is last mile. In New York City, property near subways is worth more. Is the future of real estate values based on proximity to distribution centers???"
The small-medium industrial bay leasing market has had a strong and steady Q1, mostly impacted by the housing market, distribution market, and mining industry. As the housing market continues to stay hot, contractors continue to stay busy and expand, fueling the small-medium bay demand.
The Northwest market continues to be the most expensive market as most service/trades businesses want to be close to the expanding markets (Marana, Oro Valley) and I-10.
We can expect lease rates to climb until the vacancy loosens up which will not happen until the housing market development starts to cool off. Medium bay leasing is also a very strong sector of the market mostly due to the demand for increased distribution and storage of building materials.
We can expect to see more industrial development occur where vacant industrial land permits as build to suits become more popular for last mile distribution.
3215-3275 S Dodge, a nine tenant, heavy industrial business park sold to Torch Properties, the sister company of BRD Realty.
Located in the Palo Verde industrial market, the largest industrial market in Tucson, this building was 82% occupied with tenants in the manufacturing, auto, landscaping, carpentry and gem show industries.
Steve Cohen of Cushman & Wakefield PICOR and Max Fisher and Brandon Rodgers of BRD Realty handled the sale.
Max Fisher, Industrial Properties Broker