Tucson Industrial MArket Remains Strong

Despite interest rate hikes, two quarters of negative GDP and a cooling housing market, the industrial market remains strong. We can attribute the strength of the industrial market to the growing retail-e-commerce market, new construction market, overseas supply chain relocation and a lack of inventory.
With a handful of 40+ acre industrial parcels recently sold or in escrow, we can expect new to Tucson developers to start breaking ground in the second half of 2022. The vast majority of this new speculative construction will be catered to distributors and manufacturers occupying 20,000 SF + bays. There has been some talk of interest rates affecting new developments and banks starting to underwrite these developments more conservatively. Recently, we have seen an increase in seller carry back financing and expect to see this trend grow.
User demand for large industrial parcels of land continues as China faces more shutdowns which is driving companies to relocate their manufacturing to the US and Mexico. We don’t expect this trend to slow down any time soon as supply chain challenges look more long term than short term.
So far, there has been no new construction of bays less than 5,000 SF which is putting pressure on small bay industrial business parks.  In addition, upcoming redevelopment projects of industrial property are also a key factor in the limited existing supply. Currently, the vacancy rate is below 5% as 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 industrial buildings.
Building materials seem to be flattening while commodities such as steel, copper and lumber start to drop in price. Inflationary pressures continue to affect small and large businesses, especially in the transportation sector as fuel and energy remains high. The two largest problems that businesses are facing today is a lack of labor and inflationary pressures.
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, and copper demand continues to increase as the EV, electronics and solar market grows rapidly.
Here are a few of our recent deals highlighted:

• Lincoln Property Co purchased 77 Acres at the SE Corner of Alvernon and Los Reales from Diamond Ventures. Max Fisher, BRD Realty handled this transaction. Plans for I-10 International include four warehouse/distribution buildings totaling 476,000 square feet, 214,882 square feet, 188,327 square feet and 158,908 square feet, located on 77 acres just minutes from both Interstate 10 and Tucson International Airport. To discuss leasing, investment or property management opportunities with Lincoln Property Company in the Desert West region, please call David Krumwiede or John Orsak at (602) 912-8888.
• 540 W Prince, a 7,489 square-foot office business park for 7 tenants was sold to SAW Properties and Development LLC for $500,000. The seller, Rich Rodgers Central Inc was represented by Max Fisher and Brandon Rodgers of BRD Realty. The buyer was represented by Sandra Reece of United Brokers Group.
• 8,950 SF at 4161 S Country Club Suite 141 owned by RRPC Inc was leased to Spencer's Discount Sales LLC. Jon O'Shea of Vast Commercial represented the tenant and Max Fisher of BRD Realty represented the landlord.
  
• 1,400 SF of warehouse/flex at 3755 E 34th St Suite 119 owned by Rodgers Investment Fund II was leased to JG Affordable Landscaping. Max fisher of BRD Realty handled this transaction.
  
• 1,200 SF of warehouse/flex at 7941 E Lakeside Suite 110 owned by Lakeside BP LLC was leased to Original Work Apparel LLC. 
  
• 2,100 SF of warehouse/flex at 18 E Ventura owned by Thomas Hood LP #1 was leased to Dent-Busters LLC. 
  
• 3,000 SF of warehouse/flex at 1032 e Mill owned by RRN Inc was leased to Brewer Companies LLC.