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Phoenix Multifamily Remains Strong

By Roland Murphy for Arizona Builder’s Exchange

“Phoenix is riding a wave of high performance” in the multifamily market, according YARDI Matrix’s Spring Analysis.

Rents in Phoenix rose 5.1 percent year over year, significantly outpacing the national 2.7 percent rate.

There are 9,000 units under construction, with another 16,000 in planning stages.

Phoenix remains less expensive than several other markets. The average Phoenix rent was $975/month, compared with a national average of $1,312. That said, with rents on the rise in every submarket but one, affordability is becoming an issue.

The Southwest Maricopa County submarket led the pack in rent growth at 10.1 percent. Even traditionally less desirable areas like Metrocenter and Maryvale saw increases, coming in at 8.3 and 8.7 percent, respectively.

That can likely be attributed at least in part to a 7.5 percent in the Renter-by-Necessity segment. “Demand for low- and mid-price properties will remain elevated,” the report says, “due to job growth in low-paying healthcare and hospitality sectors.” Average rent in the Renter-by-Necessity segment is $796.

Rents in the upscale Lifestyle segment inched up 3.3 percent to $1,157. “Developers focusing mainly on luxury units in high-demand corridors may contribute to rent deceleration in the Lifestyle segment,” the report cautions.

Investment

Investors are still bullish on Phoenix, with more than $5B in properties bought and sold since the beginning of last year.

The drive for new deals remains strong. More than $600M worth of exchanges took place in Q1, 2017. Reflecting the elevated segment demand mentioned above, nearly two-thirds of the 26 transactions so far in 2017 have been in the Renter-by-Necessity asset class.

Sales prices have increased across the board due to the availability of new, high-end units, a low vacancy rate and rising rents. 2016’s median price was more than $109K/unit.

Most investor activity has concentrated in Deer Valley, South Tempe, South Mesa, Chandler and North Scottsdale. However, the most expensive transaction of the year was the acquisition by Simpson Housing of the Citrine development in South Paradise Valley. The company paid JLB Partners $94M ($301K/unit) in the deal.

Supply

For the first time since 2010, Phoenix outpaced the national average in bringing new units online. The area put out more than 8,000 units in 2016, an increase of 2.8 percent. The national rate was 2.5. Most of the development is in high-demand corridors such as North Tempe (2,594 units under construction), Gilbert (2,445) and Uptown (2,072).

The massive 1,069-unit Camden North End on Mayo Boulevard in the Union Hills area is the largest multifamily project currently in development and promises to have a major impact on the entire area surrounding Desert Ridge.

Expectation

Given the ongoing high demand/low vacancy rate, the strong development pipeline, investor appetites and the area’s still comparatively appealing affordability, the report predicts rents will continue rising throughout the year at a cumulative rate of 6 percent.

The Phoenix report and all YARDI Matrix’s institutional research is available for download here.

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