By Roland Murphy for Arizona Builder’s Exchange
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.