The multifamily investment activity in Metro Phoenix remains extremely strong. This is driven by the employment and population growth in these markets, as well as by the affordability of rental housing compared to other parts of the nation. The employment growth has occurred in many segments, including technology, medical and finance. Technology companies are focused on cities where universities provide an abundant supply of skilled labor for these types of jobs. Arizona State University (ASU) in Metro Phoenix is one of the largest universities in the country with more than 87,000 students. It is working hand in hand with technology companies and other expanding employers to provide the education their students will need to fulfill openings in the market. A skilled workforce and affordable housing have been strong pulls for companies looking to relocate, expand or get off the ground.
Cindy H. Cooke, Colliers International
The increases in jobs and population have led to further increases in rent, occupancy, construction and absorption. The public’s changing perception about home ownership and the freedom that renting allows — along with the amenities provided in many of today’s apartment communities — has propelled multifamily demand in Metro Phoenix. The area’s overall vacancy rate for the third quarter was nearly 5.7 percent in all product types, with several submarkets coming in below 5 percent. Absorption has been very strong with an occupancy increase of 8,397 units over a one-year period. This has created a healthy ratio between absorption and the construction of about 9,880 new units.
Most of this construction has occurred in urban areas where we feel rents are still artificially low due to overbuilding in one spot, at the same time, with similar product. Absorption should continue in those areas, however, with rents increasing thereafter. We are also starting to see new suburban development underway or in the planning stages. We anticipate this healthy ratio between absorption and new construction to continue due to the increase in construction costs. The cost of new construction has also impacted the B product favorably. This is because value-add opportunity is less risky to investors but still allows them to push their improvements up to more of an A-level product, thereby capturing significant rental increases. Metro Phoenix offers great opportunities to investors who have the foresight to embrace growth along with location product potential.
— By Cindy H. Cooke, senior executive vice president of multifamily investments, Colliers International. This article first appeared in the January 2019 issue of Western Real Estate Business magazine.