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Tucson continues to struggle to add jobs, but real estate perks up

Arizona's employment picture seems to be getting brighter, while Tucson's remains dim.

The state's unemployment rate fell to 4.5 percent in October, the lowest since December 2007, when the Great Recession was beginning.

Arizona gained 32,000 (1.2%) non-farm jobs from October 2016 to Oct. 2017, the Arizona Office of Economic Opportunity reported Thursday. Metro Phoenix added 34,600 jobs (1.7%)

But metro Tucson lost 3,900 jobs (1 percent) over the year. Once again, that put it at the bottom among the state's major metro areas for job growth.

Its unemployment rate dipped to 4 percent in October, compared to 4.7 percent a year ago. On the face of it, that statistic looks good because it suggests that more people are working and fewer people are job hunting in Pima County. The unemployment rate is based on a survey that asks how many people were looking for jobs in the last month.

But the improvement in Tucson's jobless rate is misleading because the overall number of people 16 and older who willing or able to work in Pima County shrank over the past year by 3,400 to 473,000, said Doug Walls, research administrator.

"It could potentially be that individuals are retiring, taking care of relatives or going back to school and those types of things," he said.

University of Arizona economist George Hammond said that while the Tucson news is disappointing, these numbers are preliminary and in his opinion, too pessimistic.

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"Our estimates suggest that Tucson actually did better during the last quarter of 2016 and the first quarter of 2017 than the preliminary data suggest. We may see an upward revision of the Tucson job growth when revised data come out in March 2018," he said.

And several real estate reports that came out this week, suggest that Tucson's economy may have some bright spots and hop

Why is Tucson's job market struggling?

"I do think that the concentration of government activity in Tucson and the appreciation of the dollar vs. the peso have had an impact," Hammond said.

Walls said he Tucson area relies on government jobs for 21.2 percent of all jobs, while government jobs at the state level account for just 15 percent. Government jobs include not just city, county and federal workers but those who work in public schools, in some health care positions and even government-financed roadwork.

So when federal, state and local governments cut their budgets, that has a greater impact on communities like Tucson.

Tucson's proximity to the border makes it more vulnerable to declines in Mexico tourists and the fact that their money doesn't go as far because of the stronger dollar.

Tucson's population growth also has been sluggish. Its population grew just .4 percent in metro Tucson from 2015 to 2016, according to the latest most reliable estimates, Walls said. Arizona grew by 1.1 percent, and Maricopa County, 1.5 percent in that time.

Walls said some specific areas that seems especially weak in metro Tucson are engineering, tax preparation, accounting, bookkeeping and sellers of electronic equipment and sporting goods.

While many of Tucson's job announcement s have been for customer service centers and Amazon-type warehouses and distribution centers, Walls said statistics don't pinpoint how many of those jobs Tucson is getting. Those jobs are classified by industry. Call-center jobs in banking or insurance, for example, would be listed under financial services. An Amazon-type warehouse or distribution center might be classified under retail or warehousing.

Real estate bright spots

The metro Tucson residential home market is still much better than last year, according to the Tucson Association of Realtors and Multiple Listing Service of Southern Arizona. The latest "Marketbeat" report from Cushman&Wakefield/Picor said the Tucson area could be poised for more commercial real estate activity. And that could mean job growth because more offices, stores and industrial buildings mean more employers. One obstacle though, is there is a shortage of trade professionals, namely carpenters, electricians, plumbers and others needed to construct buildings.

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Home prices: While home prices are higher than they were in 2016, they fell in the last month. The median sales price for a single-family home fell to $199,900 in October from $206,915 in September. But that was 12 percent higher than October 2016. Average days on the market fell to 40 in October from 42 in September. And permits for new homes reached 2,152 in the third quarter, an 18 percent increase from a year earlier, according to Cushman & Wakefield.

Offices: Since Caterpillar Inc. announced plans last year to relocate a regional headquarter to Tucson, a number of companies have been scouting Tucson's inventories for buildings in the 30,000-square foot range. But if that market takes off and new offices are needed and there is a shortage of construction workers, lease rates could rise later this year and into 2018.

Retail: Pent up demand for retail sparked 149,218 square feet of new construction in the third quarter of 2017 and the over all vacancy ticked down to 6.2 from 6.4 percent between the second and third quarters. And now that Tucson's downtown has more of a "live work play" environment, some national brands have begun to evaluate it. "Tucson will remain a growth market with consistent year over year in migration," said Cushman & Wakefield.

Multifamily: Tucson continues to be popular for investors who like to buy apartment and condo complexes for their monthly income. But that isn't good news for renters. Average monthly rent in metro Tucson was $718 per unit in the third quarter, an almost 5 percent increase from second quarter.

"Numerous syndication groups have entered with hopes of building large communities over the next few years. Tucson remains one of the more attractive investment targets due to the increase in quality employment and higher cap rates on multifamily sales," said Cushman & Wakefield. New multi-family complexes have been built or will be built in the downtown and University of Arizona areas. But rents have doubled and even tripled in some locations.

Industrial: The Tucson area has lots of older, obsolete properties, especially in the "big box" range of 100,000 square feet or more. If the Rosemont mine were to start production in the nearby Santa Rita Mountains or another large employer came to town, those spaces could be filled in quickly.

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Largest Pima County employers

A community's largest employer can tell you a lot about the quality of the jobs there. Here are the top employers in Pima County from the Pima and Maricopa County associations of government.  Their interactive reports can be found here.

Largest employers in Pima County in 2016
EmployerNumber of 2016 jobs
University of Arizona13,160
U.S. Air Force10,630
Raytheon Co.16,620
Pima County6,710
Banner Health6,210
City of Tucson4,370
Tucson Medical Center3,820
Veteran's Health Administration3,240
Largest employers in metro Tucson communities
CommunityEmployer2016 jobs
TucsonUniversity of Arizona13,080
Pima County, unincorporatedRaytheon1,550
Oro ValleyVentana Medical Systems1,400
San Xavier Indian Res.Desert Diamond Casino, Hotel1,100
South TucsonLa Frontera Center480
Tohono O'odham Indiannot available