Commercial Real Estate in Arizona – White Paper from Offices.net

Introduction

Arizona's economy grew stronger thoroughout 2011. Statistics show that a modest recovery has begun, even though the pace was agonizingly slow. Since 2007, Arizona's commercial property markets have been following a curvy, rocky road. However, the commercial markets in the north are starting to see an increase in commercial traffic. Northern Arizona is seeing more tenants, slight increases in rent and new activity in retail and industrial markets.

Phoenix

Last year, many industry experts thought there would be no meaningful recovery for 2011. Yet, the commercial real estate market has experienced some improvements. Vacancy rates have stabilised, positive absorption was recorded and there has been some asset appreciation in certain sectors. Still rental rates remain soft and financing is still difficult to obtain.

Office

Rents for office space hit a low midyear. In the office market the total space available was 2.3 million SF. Last year there was 2.2 million. Vacancy rates declined from 24.2 to 21.5 percent. Though, today Class A space is starting to experience some growth. In the Phoenix office market there is only one construction under way which is reserved for the FBI.

Industrial

A major company announced plans to build a data center that will be in excess of one million S.F. Vacancies have declined from 15.2 to 12.5 percent. Distribution vacancy rate dropped from 18.3 to 12.4 percent. Construction activity in the industrial market totals add up to 3.4 million SF compared with only 619,000 SF, one year ago. Construction projects that are built for specific tenants embody 86.3 percent of all present construction activity.

Retail

Retail markets experienced a positive absorption with 98,000 SF subsequent to numerous months of negative absorption. Commercial centers that are currently under construction have a combined total of 219, 000 SF.

Tucson

Tucson is growing and has plenty of possibilities for businesses who are searching for retail space. Not to mention the gorgeous weather, friendly people and a small town atmosphere. No matter what type of economy, good or bad, one can always find new retail construction. 2011 was a year of resetting expectations for lenders, landlords and sellers. The creation of jobs contributed to the absorption of 286,000 SF. Although during 2011 commercial markets improved slightly, business experts believe that better days are coming.

Retail

At the end of 2011 the vacancies trickled down to 11.7 percent .2 percent ahead of the end of 2010. Vacancy climbed higher for the downtown sector to 9.1 from the previous 7.2 percent. More positively lease activity increased at the end of 2011. With foremost employers contributing to the growth and solidity, the retail market will continue to do well due to the housing market becoming better and the population growth.

Office

The Tucson office market recorded a positive absorption of 374,951 SF with over 134,000 SF occurring in the last quarter. The largest single lease was for 63,544 SF. The recent drop in rates and the increase in absorption appear to be sparking activity. Following the momentum tenants will continue to take advantage of the prospect of upgrading for a small change in their rent.

Industrial

The first part of 2011 experienced a slight improvement and then they persisted to fall until they bottomed out due to economic instability. However, minor progress was seen in activity by the fall with additional improvement by the end of 2011 in certain market segments. Two dynamics dictated this activity. One was that quite a few buildings came on the market due to consolidation. The second was due to industry expansions positively affecting space absorption. Leasing remained sluggish, but was diverse based on the size of the space. Small spaces with less than 4,000 square foot were most active. Mid-size space activity showed an improvement, as well.

Arizona Incentives

The state of Arizona is dedicated to businesses. A new incentive package provides features that allow businesses to earn tax reductions and credits, receive grants to train employees and increase their net results by allowing an increase of personal exemptions, plus there are many more features to this package. Arizona has a lease excise incentive that is a tool to reduce operating costs by charging excise instead of a property tax. For green projects bonds are available for an alternative financing option. Renewable energy incentives are also offered.

References:

CBRE www.cbre.us/o/phoenix
Arizona Commercial www.arizonacommercial.net/tuscon
Arizona Commerce Authority www.azcommerce.com

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