Shifting Downtown Tucson Market

1 Reply | Tucson, Arizona

As a resident of downtown Tucson, I have watched it change a lot in the last 5 years. Over the next 2 to 5, we can most likely expect another big shift in the supply and demand factors in the downtown market. Big changes are on the way that are bound to affect the student housing sector, hospitality (including AirBnB and VRBO), and the economic layout of downtown.

Recently the University of Arizona president and board decided to no longer pursue increasing undergraduate enrollment by 20,000 over the next 5 years. Anticipating that growth many investors have bought both multifamily and single family property downtown for use as student housing which has historically drawn a premium rental rate. As it stands four more student housing high rises have been approved and are in various stages of construction. Those four towers alone will account for 10% of the university population. When you account for current housing such as Sol y Luna, the HUB, the District on 5th, the Cadence, INDI, Campus Crossings, and a plethora of others you are looking at a large and growing supply. If you have a student rental now, you have probably already experienced the effects these new options are having on the market. In 2017 your student rentals were probably all leased for exactly what you wanted in rent before the end of the fall semester for the following school year. In 2018 things may have taken longer to fill up but they got there. This year I know owners who still do not have tenants for the coming fall. Those that are rented are not getting the premium rate without the amenities offered by the luxury student housing down the street from you.

In the hospitality sector is also getting a huge influx of supply. A 170 room DoubleTree by Hilton, 75-room Hampton Inn, a 123-room Home2 Suites, and 296 room Hyatt Regency are all in the works and moving forward to open downtown in the next year to two years. How much those units will affect the AirBnb and VRBO markets is yet to be seen but my guess would be that during peak seasons (UofA home games, gem show, ect.) you can expect to see lower occupancy than the past or potentially need to lower rates to compete.

All of that being said Tucson’s economy is still experiencing a major upswing. Multinational companies continue to invest in Tucson to take advantage of the tax credits, prices, and partnerships with the University of Arizona to supply quality candidates during their expansion. A great example would be Caterpillar building a new mining center just west of downtown. While hiring numbers have not been released approved plans call for 500 parking spaces. Geico’s new regional office is set to hire 700 people and Amazon is opening two facilities with expectations to hire more than 1500 employees.

At the end of the day, the market in Tucson is still extremely strong but recent happenings are going to force a change in approach for investors. With the student housing sector becoming as saturated as it is and that causing rents and occupancy to take a hit, those looking to sell a property in the next couple of years would probably do best moving sooner rather than later to take advantage of the lack of inventory and higher returns, and most importantly, snag a higher price from a buyer. Once income goes down the value of your income property is going to do the same. If you are in the market to buy, like I am, make sure you are not depending on future demand outpacing supply to bring you your returns like it has in the past. 

Thanks for the analysis, I think you are right on the money. Anecdotally, I'm seeing a lot more for rent, leasing for fall signs, at this time of the year than normal on my way to the university from east side.