By Roland Murphy for Arizona Builder’s Exchange
Like sizzling daytime summer highs and chilly overnight winter lows, the Phoenix-area multifamily market runs hot and cold. Currently, the market is “on fire”, according to the Yardi Matrix Winter Report for 2017.
Rents in Phoenix rose 5.9 percent year-over-year through November. The national average was 4.4. Keeping the area’s appeal compared to other expanding markets, the average rent was still only $906/month, compared with the $1,214 national average. Every Phoenix submarket still saw increases, however.
The heat in multifamily is directly attributable to the area’s overall economic strength. Phoenix added nearly 48,000 jobs over the year, with gains spread across the board, including in high-wage industries like healthcare and professional services.
Job growth was led by education and health services, but mining, logging and construction jobs raced upward by 9,600 jobs, and construction is racing to fill skilled positions as fast as it can find workers. Multifamily development has been, and remains, a major contributor to job demand in the sector.
Demographics and Ownership
When it comes to population and general economic growth, Arizona ranks in the top five across the nation, but that will have an ongoing impact for both renters and owners. The median home price hit nearly $216K last year, a 5.8 percent increase. Since most new supply was developed for luxury units in high-demand corridors like Downtown, affordability could become a pressing issue.
Phoenix’s population has jumped 8.8 percent since 2010, which the report cites as one of the highest rates in the nation.
In 2015 alone, the Phoenix metro area population went up a full 2 percent, compared to the national average of 0.8.
Supply Increasing, but Fast Enough?
In 2016, Phoenix Metro added nearly 8,100 units, doubling the 2015 output, but still trailing the national rate.
Construction is moving forward, in part because regulation and governmental impediment are not as cumbersome as in more land-constrained areas.
Phoenix metro currently has nearly 42,000 units in development. Of those, 10,500 are actively under construction, and 23,000 more are in the planning stages. Not surprisingly, North Tempe, with a pipeline of 1,870 units under construction, remains the most active submarket.
More than $4.3B in transactions were completed through November, an increase of 25 percent from 2015’s full year total of $3.6B. Institutional investors who have been priced out of many West Coast markets see Phoenix as an ideal to market to spend their cash, given the area’s higher yields and positive growth potential.
Per unit prices averaged just more than $111K, which still trails the national average of $134.5K.
Given that the Phoenix Metro area continues its investments in infrastructure and modern urban development, such as along the light rail and other multi-modal transportation solutions, and that area’s economic development and corporate relocation efforts show no signs of slowing down, it can be reasonably assumed the blazing hot pace of multifamily growth with continue throughout 2017.