Economy
Tucson's economy continued to expand modestly in the third quarter (Q3) of 2026, though the signals were mixed. Unemployment rose to 5.0% from 4.3% a year ago, above both the U.S. (4.2%) and Phoenix (4.4%). This can be read as a softening labor market, or as an expanding labor force drawing more residents into the job search. Household fundamentals were stronger. Median household income rose 4.8% to $79,200, outpacing national growth of 3.9%, and household formation grew 0.9% to 457,000, nearly double the U.S. rate. Incomes still trail the national median of $88,400 by about 10%. Moody's Analytics expects unemployment to ease toward 4.5% by Q3 2027. The main headwind remains financing: the 10-year Treasury rose to 4.64% from 4.26% a year ago.
Supply & Demand
In Q3 2026, Tucson’s office market continued to improve, with vacancy declining to 7.4% and year-to-date net absorption reaching 446,969 Square Feet (SF). Medical office demand remained strong, supporting continued leasing activity across the market. Lease rates generally remained in the low $20s Per Square Foot (PSF).
Healthcare users continued to drive leasing activity, with TMC Health leasing a total of 20,685 SF at 2424 N. Wyatt Drive for its urology and cardiology services. The Northwest submarket remained in high demand. Downtown also showed signs of improvement, with a new 6,000 sf lease signed during the quarter following limited activity in recent quarters.
Development activity included the completion of Pain Institute of Southern Arizona's Northwest/Oro Valley location. New medical development remains challenging as construction costs continue to rise, with office-to-medical conversions costing approximately $100 PSF. Limited existing building availability in Oro Valley is prompting some healthcare users to consider land purchases for new construction.
Pricing
Average asking rents reached $21.84 PSF, while Class A asking rents averaged $27.52 psf. Medical office demand continued to support pricing, with well located, improved properties seeing slightly higher per-square-foot values. Rising construction costs remain a consideration for users evaluating conversions or new medical facilities
Investment activity remained steady, with sales primarily consisting of smaller owner-user transactions and no major office building deals reported during the quarter. Medical properties continued to attract out-of-state investors, contributing to tightening capitalization rates. Bourn Companies’ acquisition of 333 acres at Innovation Park in Oro Valley for $21.25 million was a notable land transaction, with Cushman & Wakefield | PICOR representing seller Venture West Group. Adaptive reuse also continued, as Bourn Companies welcomed its first tenants at The Works.
