With moderator John Lotardo, senior vice president of Commonwealth Land Title Co., at the helm, owners and developers dove into a discussion about Phoenix’s multifamily market — current trends, future activity and more — at the InterFace Phoenix Multifamily Conference on Sept. 11 in Scottsdale.
And the main consensus for the Phoenix market? It’s all about the job growth, absorption is steady and the current activity should continue for the next few years.
Decrease in Homeownership, Increase in Jobs
Overall the marketplace has experienced an increase in job growth, particularly throughout the workforce sector, resulting in a steady need for multifamily housing options across the area.
“Homeownership has gone down approximately 12 percent overall and jobs are increasing,” noted John Rials, executive vice president of Western Wealth Capital.
This trend is creating a more complex demand for housing throughout the market. While there is an increase in jobs, it’s important to note that the majority of those jobs are workforce-level. Developers and owners need to be cognizant of rent ceilings for residents, explained Nicole Wray, senior director with Greystar.
New Audiences, New Exposure
Along with meeting the needs of the continuing influx of renters, owners and developers are navigating the ever-changing demands of residents coupled with new-found exposure from social media platforms and more transparent marketing.
Two main targeted audiences are workforce and millennial tenants; however, each audience is looking for slightly different housing needs. Brett Johnson, vice president of acquisition, West, with Passco, said that each submarket has needs specific to its demographic and targeted audience — whether low density properties with larger floorpans, high density buildings with smaller units or designs in-between.
Mark-Taylor Cos., with more than 19,000 units developed in the Phoenix market, is currently focused on building larger units in lower density configurations with timeless designs and finishings.
“We’ve seen that there are really three things that tenants look for in housing: security, open floorplans and the quality of staff,” said Chris Brozina, executive vice president of Mark-Taylor Cos. “Our main focus is meeting those needs in properties that are universally attractive to a variety of renters.”
Adding Value without Overbuilding
While there may be pockets of overbuilding, Phoenix’s multifamily sector is not overbuilt – yet. Brozina explained that for every 100 jobs created in Phoenix since 1982, there has always been between 13 and 30 units of corresponding apartment demand, resulting in 700 to 9,000 units per year.
While the area’s development pipeline is in line with the historical demand numbers, panelists noted that it’s critical to take into consideration the rent gap from Class A to workforce housing to ensure there is a variety of housing options to meet the needs of tenants.
Not all renters are looking for large units decked out with luxury amenities. Some prefer smaller units and walkability while others may prefer a small yard in a low-density property.
Less Fervor, but Holding Steady
Looking forward, the Phoenix market is poised to stay on a healthy course. In the short term, the area is set for positive development and absorption numbers if job growth continues, particularly if developers are cautious with development.
The Phoenix multifamily market is currently in the middle of a development cycle, but Brozina explained that with today’s tight financing environment projects have an average of four years from initial land selection, acquisition and entitlement through completion.
“Mark-Taylor Cos. is building slower than ever before, but for us the slowdown is risk mitigation,” said Brozina. “As a developer-owner, we want to ensure there is a need before building.”
The market has seen a fervor of development and acquisition activity recently. For example, Wray noted that Greystar, which develops and manages multifamily properties, netted 14 buildings in the marketplace this year. But developers are remaining cautious about the prospects for continued economic expansion.
“Economic expansion never dies of old age; it’s always assassinated by monetary or legislative changes,” added Brozina.
The multifamily market always ebbs and flows, and while Phoenix’s intense activity will naturally decrease over the next few years, panelists agreed that the market will still offer plenty development, acquisition and disposition opportunities for multifamily.
— Amy Works