Wednesday, February 1, 2006

Real estate bubble safe here, land experts say

Tucson said to be positioned to profit from Calif. troubles, baby boomers

DAVID PITTMAN

Tucson Citizen

Will Tucson's commercial real estate bubble burst in 2006?

Not a chance!

That was the emphatic message from the commercial real estate specialists at Tucson Realty & Trust Co. who provided an overview and forecast of various aspects of the market yesterday at Tucson Country Club.

"I am here to tell you there won't be a bust in 2006," said Hank Amos, president and chief executive of the company.

Amos said that to have a market downturn, there must be an overabundance of supply, something that does not exist in Tucson's retail, office, industrial or land markets.

Commercial real estate development will "follow the rooftops," and Tucson's continued residential growth will be fueled by "California cash-outs and baby boom retirements," he said.

Gerri Reisig, an industrial specialist with the company, said there is a shortage of 5,000- to 10,000- square-foot office/warehouse buildings for growing local companies and virtually no space of more than 50,000 square feet to lure larger national firms here.

Nonetheless, Reisig sounded an optimistic note for the coming year.

"The future looks bright for high-tech manufacturing and biosciences," she said. "Expect growth in this area due to our low labor and housing cost, California's woes and the University of Arizona's focus on research and development."

Michael A. Gross, an associate broker specializing in office property, predicted investors will buy older office properties and give them "a face-lift" in an effort to meet a shortage of upscale office product in Tucson.

He predicted office rental rates "will remain somewhat stable" during the coming year.

Tim Bentley, a sales associate specializing in the retail market, said some retailers may be "caught off-guard and suffer sticker shock" as lease rates in enviable locations in the Santa Catalina foothills and the Northwest and Southeast sides could nearly double from about $12 per square foot to $22 or $23 per square foot.

"It will be wise for retailers to secure renewal options in their leases at rates reflecting only cost-of-living increases," he said.

George Stamos, an investment specialist, said thousands of condo conversions will come online in Tucson during the next six months. For that reason, he predicted "the condo craze will cool off significantly in 2006."

Associate broker Richard Foerster said Tucson's land market can be summed up in two words: "continued sprawl."

Foerster said desert conservation efforts and the fact that 84 percent of surrounding lands in the Tucson basin are the property of state, federal and national governments have created a scarcity of land. That scarcity has driven land prices higher and contributed to skyrocketing new-home prices.

"The combination of increasing government restrictions, pricing and increasing population growth spells sprawl," he said. "We see it as following the path of the Butterfield Stage from southeast to northwest,from Benson/St. David to Red Rock/Picacho."

The rush for land on the part of home builders is proving lucrative for ranchers and farmers, said Richard Johnson, a specialist in such properties.

"Land has reached the point that it is equivalent to gold," he said.