Closing the Year: Lessons from the Last 100 Issues

By Roland Murphy for AZBEX

Over the course of every 12 months, we put out a total of 100 issues. Today is Issue 100 and brings Volume Year 16 to a close.

We’ve marked these year ends in various ways over the years. Sometimes we’ve done top project reviews; sometimes we’ve just let them slide by without note. Since the last year has been one filled with a sense of change—sometimes valid, sometimes not—I’m going to take some space to reflect on what issues have made the greatest imprint on me over the last year.

Spoiler Alert: Everything is mostly okay.

While we rarely take a stance on political topics, it would be ignoring a pretty big elephant in the room to leave out the start of Donald Trump’s second term, particularly after the four years of Joe Biden’s term in-between Trump’s terms.

There was a lot of trepidation on some fronts and some high expectations on others. Both had some validity, and neither hit as hard as many expected.

The administration’s crackdown on illegal immigration definitely hit the construction industry, and it is continuing to do so, although precise calculations as to how hard are so clouded by the political leanings of whomever compiles data as to require an entire margarita’s worth of salt.

It has also fueled a long under-stoked fire under programs to increase the attractiveness and availability of skilled trade education and workforce development, while simultaneously giving actual momentum to often discussed but rarely acted upon reform and modernization of worker visa programs.

Tariffs have started to have a decided impact on materials costs, but the wild swings in tariff policies have generated around $5T in direct foreign investment from countries and companies looking to escape the uncertainty or avoid penalties, which has led to major increases in commitments for manufacturing, technology and other facilities that otherwise either would not be built in the U.S or would have come about on a much longer timeline.

Partially fueled by the President’s rhetoric, but more largely by the pace of the overall economy and market leaders clamoring for relief, the Federal Reserve began implementing modest interest rate reductions, which has been met with measured but noticeable activity from the finance sector, finally freeing up some of the pent-up development capital that had been held in the limbo of “wait and see.”

Interest rates remain too high to have had much of an impact on home ownership and housing affordability, but at least some of the movement has been in the right direction.

One thing that has proven undeniably true at the national level is that nothing—from procurement processes to public funding to regulatory requirements—can or should be taken for granted.

Movement in the Sectors

Gladly leaving behind the morass of national politics and policy, the individual sectors of the Arizona construction industry have proven fascinating to watch, particularly in Residential and Industrial.

After a decade of under-building, both single- and multifamily construction pressed the accelerator to the floor during and after the pandemic. For the first time in years, the market was building and delivering at a pace approaching demand. Then, when deliveries hit the market and lease-up took some time, the pace slowed. It was almost as if some people expected the once-in-a-lifetime fluke of 30% rent increases to become the new normal.

Despite a slowdown in new permits and starts, most observers see the movement as a normalization, rather than a wild swing.

One thing I have personally found interesting after more than a decade of close involvement with the housing sector: Developers are finally diversifying product types. Since before the start of the 2020s, between 90% and 93% of apartments planned and under construction have been in the top two tiers of product class.

While luxury apartments do, in fact, contribute to affordability by increasing the available supply and giving people looking to move up places to move into, thus freeing up their previous homes for new occupants, they do not have the same degree of immediate impact that producing residences in the middle and affordable ranges do.

Other observers and I, far more deeply ingrained in the market’s day-to-day grind, have said for years it would be wise for owners to expand their mid-market holdings. Sub-luxury residences, after all, will always have higher occupancy rates than the upper echelons, will be less susceptible to market swings and will generate more consistent returns over time, which can be a hedge against those fluctuations and help owners ride out troubled times.

At the far end of the scale, we’ve also seen significantly increased interest in all types of affordable housing. While the resistance cadre, which we’ll touch upon later, gets its hackles up anytime the “A-word” is mentioned, thinking their neighborhood is immediately going to turn into Cabrini Green in the late ‘80s, developers like Dominium Apartments and Gorman & Company, among others, continue to make inroads and deliver quality homes for the lower-income market.

The Industrial sector has also seen some big shifts over the year. The pandemic triggered an absolute explosion in large-scale logistics centers, to the point that anything smaller than 250KSF was considered small-to-mid, and developments of 1MSF-plus became sort of normal.

Way back in 2018, I was in a head-to-head-to-head rush against two other outlets to lock down details about a top secret 1MSF development planned in the Tucson area. We had a true old-school reporters’ scoop battle going after that story. Because of our twice-weekly production schedule, we were sort of beaten to the punch on the initial details story, but we were the first to be able to definitively say it was an Amazon facility. (AZBEX; March 20, 2018)

After 2020, it seemed nearly every Industrial announcement was 500KSF-plus. Now, however, a few chickens have come home to roost. While there is still a demand for large spaces, the small-to-mid market that needs configurable spaces of between 10KSF and 50KSF is finally getting some attention again.

Much like mid-range housing, developers are coming back to realize those spaces will always generate returns if they are at all well-managed.

While the big-box developments take a brief, but certainly not absolute, pause to catch their breath and let occupancy catch up, the sector is anything but idle, as manufacturing facilities and data centers continue to enter the planning and development cycle at a pace no one was predicting even three years ago.

Project Opposition

I’ve written what feels like 100,000 words about NIMBYism and project opposition getting more entrenched and better organized. The last year has shown that trend continuing to intensify, with more frequent and entrenched arguments, a marked deepening of personalization and hostility, and a greater eagerness to use litigation as a means of delaying and encumbering projects.

Don’t expect that to change.

I’ve said before and won’t bother going into great detail here, developers who want to see their projects move forward need to engage more broadly and much earlier in the process. They must also be willing to speak truth and facts to nostalgia and passion—no matter how ill-informed—repeatedly and calmly in hopes of swaying the opinions of the periphery and moving them to support proposals. (AZBEX; Jan. 6)

What We’re Looking for Next

The last year has aptly demonstrated that, even with the best and densest data, the accreted weight of day-to-day events can upend even the best-informed predictions. As just one self-deprecating example, we shared with attendees of our recent BEX Forecast Event that we had predicted total market activity of $29.0B for 2025 after taking a cautious approach at the beginning of the year, given the uncertainty facing the market.

In reality, the market hit a conservative $31.9B, fueled in large part by that previously mentioned foreign investment and data center activity.

I’ve done this for a long time. I’ve learned a lot about the industry, the market, the players and myself with each passing year.

I can safely say two things:

1. Any prediction I might make today about the coming year will be, at best, only partially correct, and
2. It will be a fascinating trip and a lot of fun to watch how our next 100-issue-year unfolds.

Thank you to the entire BEX team and our incredibly supportive readership for making this all possible.