Inside Tucson Business

The level of unoccupied industrial building space is at its highest level since 1994, according to a recent study.

The PICOR Industrial Market study, released last month, also indicates that things aren't expected to recover any time soon.

"Prior to Sept. 11, it seemed that Tucson was somewhat immune to the downturn in the economy as far as the real estate market was concerned," said Robert Glaser, a principal in PICOR. "But with the downturn, and with corporate America downsizing and reducing expenses it would eventually be felt here, and that's what this report reflects. The recession, in a sense, has hit home."

The 2001 vacancy rate of 13.8 percent follows last year's lowest-ever percentage of 8.7 percent, and is the greatest since 16.3 percent of industrial space was available in 1994. The study was conducted over the final six months of 2001.

And although he said things are improving, Glaser indicates it may take several months for the industry to totally recover.

"We already see an improvement in the market. The trend is just starting to move in a positive direction, although there is still probably more space becoming vacant than is becoming absorbed," he said.

The report shows the biggest amount of vacancies in the larger properties, those greater than 20,000 square feet, and that smaller properties, those under 10,000 square feet, are "fairly well occupied," according to Glaser.

The drop in occupied space is attributed to 820,000 square feet of existing new construction, and a lack of absorption (companies expanding to unoccupied space).

It could have been worse, the report indicates, if three companies hadn't signed large new leases. Exel North American Logistics took on a 210,000-square-foot lease, while Whitmark Packaging expanded to 120,000 square feet, and Avent signed for 60,000 square feet. All three of them signed at the Century Park Research Center on the southeast side.

Offsetting that were two companies in the past six months, both in the injection molding business, that were unable to occupy their existing space mostly because of contract difficulties. They vacated 300,000 square feet.

"One of the main ingredients in the engine that drives absorption of real estate has really slowed, so business expansion has become minimal," Glaser said. "This period is one of the first periods in really a long, long time where we've seen a reverse trend. It's not surprising, with the economy turning the way it has."

"Relatively speaking, compared to other markets, I would say that we didn't see a lot of construction in Tucson, as a percentage of our base," agreed Tim Healy of CB Richard Ellis. "We didn't get overbuilt and I'm not expecting our cycle in Tucson to be like a huge roller coaster. It will be a dip, but it won't be as severe where there was a lot of new construction."

Glaser, however, is optimistic. "In Phoenix they have much more significant problems. Their vacancy rate is much greater. The problem here will probably correct itself much quicker. Occupancies at the majority of the business parks are really good, and it's just steadily improved over the last eight or nine years."