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Multifamily to Keep Growing in 2017

Credit: Freddie Mac Multifamily

By Roland Murphy for Arizona Builder’s Exchange

While growth is expected to slow a bit in 2017, a report issued last month by Freddie Mac Multifamily projects the rapid resurgence in the market won’t show signs of stopping in the near future.

The slow, steady economic growth of 2016 supported a heavy degree of demand for multifamily rental nationwide. “Despite high levels of construction permits and starts, vacancy rates remained flat, while strong demand pushed up rents and gross-income growth above the historical norm,” the report said.

Employment Growth, Desirable Climate Helps Phoenix

The better overall economy led to more household formations in 2016. Over the first three quarters of 2016, 1.2M new households were formed, 630,000 of which rented, keeping demand high. To meet that demand, construction in multifamily is at the highest levels since the late-80s.

Previously hot markets like San Francisco and San Jose have begun to cool off, as job gains have slowed and costs of living have increased.

In Sun Belt metro regions like Orlando, Las Vegas and Phoenix, however, growth in employment, highly desirable climate and comparatively lower living costs are expected to keep demand high and vacancy rates low.

Add to that the trend of downtown areas becoming revitalized once again and creating demand for high-end luxury rental supply, and Phoenix’s multifamily strength appears deeper and broader than the nation as a whole. Due to light rail and other infrastructure investments, a significant increase in activities and recreational outlets, and a general preference among Millennials to rent living spaces in centralized areas, Phoenix’s downtown has become one of the most resurgent in the country.

Freddie anticipates an even greater volume of new supply will come online nationwide this year, but that most of it will be absorbed due to continued economic growth. Many markets will see a slight increase in vacancy rates, but there will still be room for growth in rent and gross income.

In markets like Phoenix, where the increased demand still continues to significantly outpace both existing and new supply, rents are expected to grow more strongly than at the national rate, since landlords can raise rents more quickly than in other regions.

On the whole, the entire nation is expected to continue seeing strength and ongoing recovery in multifamily, but where some markets will begin to scale back and normalize, Phoenix is expected to maintain much of its leadership across the board.

1 Comment on Multifamily to Keep Growing in 2017

  1. Rudolf Kolaja // February 25, 2017 at 1:29 am // Reply

    I am surprised to see the enthusiasm about growing multifamily housing jammed into small places within our cities with ever growing traffic congestion, soon to be coming to a complete stop. This does not seem to be a reflection of growing economy, rather the consequences of the past eight years of the miserable leadership of our nation. This reminds me of the so called “welfare of communism in the Eastern Europe”. Although, they did have very powerful transit systems, which were able to handle the large density of the population living in concrete tenements.
    Our Department of Transportation is totally unprepared for dealing with the drastically worsening transportation system, unable to do anything to change it. There is a need for a lot more than a slow moving light rail in Phoenix, hundreds of buses carrying one or two bicycles, bicycle rentals on Central Avenue, the complete street mess on Mill Ave to be soon even more complicated with the modern street cars, the obsession with the bicycle lanes, double HOV lanes, and a lot of mediocre improvements on our freeways. Isn’t there anybody seeing the transportation disaster growing more and more every day?
    Is this the latest version of the “American Dream”? I hope not.
    Ing. Rudolf Kolaja, P.E., T.E., PTOE

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