Tucson Industrial Market Forecast 2025

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.

Sub-Markets

The  Tucson Airport market is seeing significant growth in its industrial footprint, with expansions  and new construction planned to accommodate air freight, e-commerce, and global supply chain operations. The airport’s proximity to the border also makes it a valuable asset for cross-border trade, and the airport's industrial infrastructure is poised for long-term growth.

With airport area demand high, land is now scarce. This lack of vacant land in the airport market will push demand outward into areas like Marana and Vail. There are also a few vacant parcels that have already been purchased in the Ajo/Palo Verde market that will soon be developed but large parcels of vacant industrial land are now scarce.

The Northwest/Marana market has the highest demand from small-mid bay tenants and buyers as lots of growth in retail/residential pushes into Marana, the most sought after area in the Southern Arizona region from retailers, consumers and industrial businesses. Lease rates in the Northwest now push North of $1.00 NNN.

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. 

User and Investor Pricing

The user market remains the strongest while the investor market trudges along with very low transaction volumes. We expect the user market to remain strong through 2025 as most of these buildings are less than 50,000 SF and this is the size range where vacancy is the lowest. User values are now even pushing $200 per square foot with the highest values in the less than 10,000 SF market and the warehouse with fenced yard market.

Despite fed rate cuts, the ten year treasury remains above 4.5% which means interest rates remain higher. Despite the cost of debt remaining high, there is plenty of demand and dry powder but the gap between buyer and seller expectations has remained too far apart for the past 2.5 years. In addition to the cost of debt, banks are underwriting in a much more conservative manner.

However, higher for longer may result in more transactions in 2025-2026 as 5 year loans mature and owners have to decide between selling or refinancing.

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