By Tasha Anderson for Arizona Builder’s Exchange
As the end of the year rolls around, it’s customary to reflect on the current state of things and look toward the future to see what possibilities lie ahead. This month’s AZBEX Leading Market Series did just that as attendees gathered at the DoubleTree by Hilton in Tempe on December 6th, to gain insight into the present and future state of the multifamily market.
AZBEX President Rebekah Morris began the presentation by giving attendees an overview of just how large and diverse the multifamily market is, using analytics from the AZBEX Database.
“Projects in this sector total more than $13B,” Morris said. “$13B is huge… between single-family and multifamily, when we look at those combined as a residential market sector, that is one-third of our total construction volume… so it’s a very active market sector.”
In naming the top Owners in the multifamily market – Arizona State University at 3 percent and Mark-Taylor, Vivo Development Partners, Alliance Residential and The Statesman Group all at 2 percent – Morris noted just how diverse the market really is.
“So, you’re looking at the largest players in the market and none of them have more than 3 percent of market share,” she said. “That’s interesting. That says there’s a lot of opportunity.”
She also noted that 9 percent of projects have not selected a design firm, while 29 percent have not selected a general contractor.
Capturing Commuters and Downtown Growth Area
After a quick rundown of the market, Morris invited panelists Eric Johnson, deputy economic development director with the City of Phoenix; Brian Cassidy, president of CCBG Architects; Scott Knauer, chief investment officer with Orion Residential Advisers LLC; and moderator Jim Moon, director of housing at hardison/downey construction, to discuss the multifamily market in greater detail and provide attendees with a look at what they expect to see in the future.
One of the biggest points discussed was the need to keep more of the commuters that drive to the central city area, or downtown Phoenix area, for work.
“If you think central city, there’s approximately 175,000 people that come to work there every day,” said Johnson. “Residentially, we are only capturing about 7 percent of those people into that area. Our goal is to try and increase that number… we’re trying to capture people that want to live and work and play in that central city area.”
Johnson also went on to mention some of the work already being done to meet that goal.
“We expect to fill approximately 1,500 units that got built in the last year. We’ve got about 2,200-2,300 units under construction within that central city area right now, and in the planning process, going through some stage of either entitlement or plan review, we’ve got approximately 4,000 units queued up. So, we’re very excited to see those projects coming along.”
However, even with this many units ready to be built, Johnson mentioned Phoenix would still be about 5,000-10,000 units short of reaching the goal to meet the available housing demand in the central city area.
On a high note, two downtown areas were pinpointed as being future growth areas for the multifamily market. The warehouse district, just south of the stadiums, has a lot of infill gong on there, Johnson pointed out. “The other area is just to the west side of Central — between 7th Avenue and Central — there’s a lot of land… I think that’s where you’ll see the next boom kind of shift.”
“There’s less than 300 multifamily units in the entire warehouse district,” said Cassidy. “What’s on the boards, at least I am aware of, would triple that in the next 2½ years. So finally, developers are seeing some strength in the southern part of downtown, not just the Roosevelt Row and mid-town area.”
Future of the Phoenix Rental Market
Another discussion was about the future of the Phoenix rental market and whether or not we are headed for another abrupt downturn. The panelists were in agreement that while there will inevitably be a slowdown in the market, it’s more likely to be a gradual slow down rather than a cliff dive.
“I agree that there is eventually [a] slowdown coming,” said Johnson, “but I think with the infrastructure and the diversity of the economy, I think it’s not going to be what it was before and that there is still demand on a lot of other areas that will kind of help us through there.”
Knauer pointed out that “Phoenix is projected to have the second-highest rent growth in the next five years of any major metro. It will see continued upward pressure… and it will flatten out a bit as supply comes online.”
He also pointed out that market cycles will continue to have “ebbs and flows” and that sooner or later we will start to see a slowdown in rent growth.
Assemble Your Team Early
Toward the end of the presentation, the question of when to have your construction team on board came up. The answer: As early as possible.
“I’ve worked every possible way of picking a general contractor on multiple project types,” explained Cassidy. “All of them fail except for one right now in today’s market, and that is picking a credible, qualified contractor… and working with them from the beginning, because we could spend a year in a preconstruction process working on a project with people, and it’s really hard to guess what the price is going to come out as.”
“There’s a lot of risk associated with building and not having a quality architect on board early,” said Knauer. “You have to have those professionals — that’s the key to your success… we wouldn’t do anything, whether it’s the redevelopment or the new development, without the architecture firm or the general contractor firm on board.”
The 2018 AZBEX Leading Market Series has come to an end. But don’t worry, it will be back on February 6th, 2019 to discuss Higher Education. To check out 2019 dates and topics, or to register for the next event, visit: http://lms.azbex.com/