Decade of Renter Continues Market Stability

Courtesy of ABI Multifamily

By Roland Murphy for Arizona Builder’s Exchange

The “Decade of the Renter,” as the current state of housing has been called by ABI Multifamily Research Director Thomas Brophy, continues unabated.

In the company’s Q1 2018 market analysis for the Phoenix MSA, he writes, “We are living through a tectonic demographic shift pushing us further and further into a more renter-centric society, which started in earnest in 2011/12…. I’ll make no assertions whether this shift is good or bad, but make no mistake that it is happening.”

Brophy cites national estimates from the U.S. Census Bureau that rental households have increased 8 percent since 2000. In the Phoenix metro, those households have increased by an astounding 21 percent from 2000-2016. Renter populations were up 31 percent in Glendale, 21 in Tempe, 20 in Phoenix, 19 in Mesa and 12 percent in Scottsdale.

Numbers Don’t Lie

Year-over-year multifamily property sales have been robust. In the Phoenix area, sales of properties with 10 or more units increased 89 percent. Seventy-five transactions totaling $1.48B and making up nearly 9,800 units were reported.

Properties of more than 100 units fared even better, percentage-wise, increasing 101 percent year-over-year, a total of $1.37B, with an Average Price-Per-Unit increase of 57 percent, or nearly $160K.

The space between – 10-99-unit properties – increased slightly, up 8 percent to $106M, a 13 percent PPU increase.

Properties built before 1980 made up 63 percent of sales, with most of the properties planned for repositioning.


Year-over-year, new deliveries fell 9 percent, with a total of 1,630 units brought online in Q1. However, the report states, in 2018, “Developers are on track to deliver 9,000+ new units, the most since 2009’s 9,315 unit delivery high. Although planned unit construction decreased (7 percent) y-o-y, to 13,829, quarter-over-quarter registered a 15 percent increase as developers gradually increased their purchases of developable land.”

Occupancy & Rents

Phoenix Metro’s occupancy rate closed out the quarter at 94.7 percent, down 0.4 percent year-over-year. Average rents went up metro-wide to end with a year-over-year increase of 5.8 percent, of $1,040. Mesa rents increased 5.7 percent, Phoenix 5.4, Scottsdale 5.2, Glendale 4.9 and Tempe 4.7 percent. Average rents are highest in Scottsdale at $1,251.

Checking the Crystal Ball

Brophy is well-known for his expansive and detailed projections, and the new report offers many updated insights.

First, he notes the deficit in new apartment units could reach 32,000 units by 2020 if the higher end of Arizona Department of Administration population growth projections bear out. If the department’s highest level of potential population growth is realized, unit demand will be nearly 109,500. Estimated unit deliveries, however, are only projected to be slightly more than 77,000.

Brophy notes the Renter Household Percentage is estimated at 37.8 percent, based off Census estimates. “Given Phoenix’s higher than historical occupancy rates, as well as, significant increases in rentership, both at the younger and older end of the demographics spectrum, actual rentership levels should increase to +/-40 percent by 2020 if current housing trends hold,” he predicts.

Ongoing problems plaguing the construction industry, including the labor shortage and heavy competition brought about by major institutional and state infrastructure projects, will continue to drag down project timelines. “Worker shortages might delay sub-100+ unit projects as demand outpaces supply of available workers particularly in finishing trades. How much lack of workers, and material costs, could disrupt the supply pipeline remains to be seen,” he notes.

The report’s extensive concluding analysis looks at multifamily’s degree of appeal for investors. Brophy notes the current economic expansion is the second-longest on record, and that a correction is likely on the horizon, though tax cuts and ongoing deregulation efforts could extend the expansion beyond many analysts’ current projections.

He concludes by noting, “Forward looking equity asset return estimates are all well below their historic 6.5 percent return mark, which has investors on the hunt for yield and, more importantly, stability. Stability, in today’s world, is preservation of capital and cash flow. Multifamily has been, and continues to be, seen as providing that stability.”

The full report is available for download here. Brophy will be presenting many of these findings – along with several other market observations (both serious and humorous) – as a featured speaker at the AZBEX 2018 Private Development Summit May 8 at the DoubleTree by Hilton in Tempe.

Be the first to comment

Leave a Reply

Your email address will not be published.