Office Rent Control Returning to Owners

In its latest look at the city's office market, Picor Commercial Real Estate Services pegs vacancy at 12.1% at the 2005 close versus 13.3% in the previous year. In its latest report, CB Richard Ellis' Tucson team, though, says the picture is somewhat brighter: 9.89% or two points below a year ago.

Researchers for both firms agree, however, absorption during that period averaged 250,000 sf. The Picor analysis showed 1.17 million sf of leasable space still exists in the 14-million-sf inventory. "Between 2001 and 2004, we went from about a 9% vacancy rate to 13% in leasable space because tenants became buyers," Thomas Nieman, Picor principal, tells GlobeSt.com.

There hasn't been any spec office construction for nearly two decades in the market, but "the condo craze re-created a lot of vacant space," Neiman says. "Tenants became owners and vacated the leased space."

CBRE vice president David Volk credits the strong local economy for the vacancy decline in light of continued office condo development. "Market fundamentals are strong. The city's economy is growing and other stats are moving in a positive direction," he emphasizes.

The local sources concur that the office market is moving toward a "landlord market," which translates into almost non-existent concessions and increasing rental rates as the year plays out. "When we get below 12% vacancy, landlords tighten concessions and rents go up a little," Nieman notes.

Volk says "hidden rents" have actually been on the rise for some time. "Concessions actually began disappearing from the market a couple of years ago, bucking the national trend," he says. "When the market got tighter, landlords dropped TIs and cut back on concessions instead of raising rents. Now there's less room for tenants to negotiate."