In a word, the regional commercial real estate market looks terrible.

That's the general assessment from Tucson Realty and Trust Co., which last week presented its annual forecast at Tucson Country Club.

But for all the dismal news, there lies one positive: the collapse has ended.

"I think the big news is we may have hit bottom," said Hank Amos, president of Tucson Realty and Trust.

The company's industry specialists say 2010 could be the year the local market makes its comeback, or at least begins to move in that direction.

"Now is a great time to invest in retail properties, with interest rates at or near record lows and most likely to go up in the near future," said David Houge, a retail specialist with Tucson Realty and Trust.

Houge cites some recent deals as evidence that the market has begun to turn.  The signing of some noteworthy retail lease deals last year, including documents for Big Lots, Staples, Burlington Coat Factory and Cheesecake Factory, have been taken as signs of life.

Still, the Tucson metropolitan market is rife with vacancies, as high as 12 percent in area shopping centers. Houge said that in times of a healthy economy, the retail market would see about 8 to 9 percent vacancy rates.

By comparison, the Tucson market looked in better shape than the hard hit taken in the Phoenix area. According to some estimates, retail vacancy rates in metro Phoenix stand at nearly the same rate as those in Tucson, roughly 11 to 12 percent. But, according to Hogue, nearly half of Phoenix's 20 million available square feet of retail space was in big box locations, as much as 8 million square feet.

The Tucson area also has seen an increase in the amount of available office space.

"Office vacancy is approximately 16 percent," said Michael Gross with Tucson Realty and Trust. That compares with an 11 percent vacancy rate two years previous. Again, as with retail space, Tucson fares better than Phoenix, where office availability has reached as much as 25 percent, Gross said.

With vacancy rates high, but likely bottomed out, Gross said many property owners are more than willing to offer renters concessions such as reduced rents. Better deals can be had for those tenants willing to make improvements to their spaces.

Other notable features of the real estate market could be found in land sales and industrial properties.

On the land sales front, Tucson Realty and Trust's Mick Gluck said the land market, too, may have reached a low point.

"Growth has always been the engine that drives our land market, and at this point, Pima County is at a standstill at best," Gluck said.

Gluck said 2009 saw 28 land deals made for sums in excess of $1 million. The highest price came in at $8.2 million. Another sizable purchase was made at year's end, when residential developer D.R. Horton bought 203 lots for $5.8 million from Canoa Homes.

"The majority of sales occurred in the northwest part of Pima County, followed by sales in the southern part of Pima County," Gluck said.

Commercial property sales took a hit in 2009 as well. Gluck estimates the 15 commercial property sales represent a 52 percent decline from 2008 and 65 percent less than 2007.

While not the most significant feature of southern Arizona's real estate catalogue, the industrial sector may have been the hardest hit.

"Not since 9/11 have prices fallen as fast and as far," said Chuck Blacher, Tucson Realty and Trust's industrial specialist.

Asking prices for industrial properties have been reduced by as much as 40 percent. According to Blacher, average sales prices in 2008 stood at $112 per square foot. Today, $59 per square foot is the norm.

Vacancy rates at industrial properties top 11 percent, and new construction has ceased completely, Blacher said.

"The marquee should read 'Bargain Prices,'" Blacher said.

For all the bad news and grim statistics, Amos predicts the start of a recovery around the corner in 2010.

"Our market is tighter than Phoenix," Amos said. "We're going to recover quicker."




Commercial deals in 2010


What to look forward to:


• Sales volumes should increase throughout the year

• Sale prices and rents likely will continue to decrease

• Property values may begin to recover


What benefits to commercial renters:


• Good deals can be had for renters who want to buy

• Interest rates remain low

• Deals are available for tenants who want to upgrade


Source: Hank Amos; Tucson Realty and Trust Co.


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