Tucson Economic Forum Reveals Local Economy’s Impressive Post-Pandemic Rebound

October 17, 2023

After more than three years steeped in economic uncertainty brought by the after-effects of a global pandemic, a challenge echoed all across the country, Tucson’s economy has finally begun to feel some wind in its sails. Alliance Bank of Arizona welcomed renowned economist Dr. Christopher Thornberg of Beacon Economics to share more information about key factors driving the vibrant city’s economic outlook and the significant milestones it has reached from 2020 at its annual Tucson Economic Forum on Oct. 12.

As of July 2023, Tucson has not only recovered all the jobs lost in the tumultuous early months of 2020 but has also added 6,700 more jobs – a marked increase compared to February 2020. Though a remarkable feat, Tucson’s recovery has not been without its challenges, and some sectors are still stabilizing, while others are beginning to flourish again.

E-commerce spending drives labor market recovery

Tucson’s labor market paints a picture of steady recuperation as of July 2023, though it still trails behind Arizona and the United States in terms of job growth. Total non-farm employment has grown by 1.7% since February 2020, and from July 2022 to July 2023, Tucson’s payrolls increased by 1.4%. These payroll increases only slightly trail the growth rates seen across the state and nation.

Unemployment rates, while improved from their pandemic highs, have inched up recently to 4.1%. That said, this figure remains close to pre-pandemic levels, although still slightly elevated compared to Arizona (3.6%) and the U.S. (3.5%). Tucson’s labor force has expanded by 2.3%, adding 11,300 individuals to the workforce since February 2020 – a strong indicator of a growing job market.

A notable highlight is the role of e-commerce spending in boosting the transportation, warehousing and utilities sector, which has added 4,900 jobs, representing a significant 33.2% increase over the last three years. This sector has been pivotal in driving job growth in Tucson since the pandemic began.

Permitting activity offers glimmer of hope for residential real estate

Like many other metropolitan areas, Tucson’s housing market is undergoing significant transformation. Though high interest rates have tempered home sales, limited supply has prevented significant price depreciation. While there may be some softening in home prices soon, they remain considerably elevated compared to their pre-pandemic peak – a trend still broadly impacting the rest of the country.

From July 2022 to July 2023, the median single-family home price in Tucson increased by 2.5%, reaching $383,500, which is a whopping 47.8% above February 2020 levels. Tucson’s housing market outpaces Arizona and the rest of the country in terms of price appreciation during the pandemic.

Rising mortgage rates, declining affordability and tight inventory have led to a 12.9% decline in home sales in July 2023 compared to the previous year. The “lock-in” effect, where homeowners with historically low mortgage rates are reluctant to sell, is largely driving these low inventory levels.

Though residential inventory remains limited, residential permit activity hasn’t significantly stagnated. Despite decreasing 27% in Tucson over the past year, residential permitting remains above pre-pandemic levels, with a 17% increase compared to the same period in 2019. This data offers a glimmer of hope for future homebuyers and suggests ongoing confidence in the residential construction sector.

With the tightness of the residential real estate market, demand for apartment units remains strong, with Tucson experiencing a 4.8% growth in average asking rents. Despite this increase, Tucson’s rents remain below the national average.

Warehouse sector keeps commercial real estate market healthy

Commercial real estate in Tucson displays varying trends. Office properties have stabilized, with an increased vacancy rate of 21.4% in the second quarter of 2023, while retail spaces have experienced growing demand, with a reduced vacancy rate of 9.1%.

That said, the star of the show in Tucson’s commercial real estate environment is the warehouse sector. With e-commerce’s sustained strength, the warehouse vacancy rate has plummeted to 3.2% in the second quarter of 2023, down 4.8 percentage points from a year earlier. The demand for warehouse space shows no signs of slowing down – an encouraging marker for the Tucson economy.

Tucson’s transition from rebuilding to thriving

Tucson’s economy, like the desert it resides in, has shown resilience and adaptability. The labor market is recovering, driven in part by the e-commerce boom. The housing market, though showing signs of slowing, remains robust, and residential permitting activity signals a bright spot on the horizon. Tucson’s commercial real estate sector, especially warehouses, presents exciting opportunities for investors and businesses.

Alliance Bank of Arizona is proud to be part of Tucson’s economic journey, providing support and financial solutions to individuals and businesses. As Arizona continues to navigate an ever-changing and frequently uncertain economic landscape, Tucson’s thriving economy offers a hopeful glimpse into a future of opportunities and prosperity for the state.

Downloadable slides from Dr. Thornberg’s presentation can be found here

Economic Forum 2023 | Presentation Deck

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Regional Intelligence Report, Economic Outlook 2023