Multifamily Trends Remain Positive in Phoenix
By Brian Tranetzki, Principal, Taylor Street Advisors
Multifamily is staying strong despite COVID-19. That’s because this product type was coming off an extremely hot market at the end of 2019 and early 2020 before the pandemic hit. The Phoenix metro area remains one of the few markets nationally with positive rent growth due to the steady population increase. Now, just months away from 2021, the market is faced with many unknown factors, such as unemployment, election outcomes, continued COVID uncertainty and the risk of eliminating 1031 exchanges. In turn, buyer sentiment also remains intense with a flurry of activity on those very exchanges.
Development is still robust in the valley, with significant increases in downtown Phoenix, downtown Tempe and
Chandler/Gilbert. There are currently more than 15,000 units under construction in the region. The building sizes are getting larger, while individual units are getting smaller. Developers are focused on building Class A properties with an emphasis on higher-end amenities, pool areas and concierge services.
The class type determines whether it’s a landlord or tenant market. Tenants have several options in the Class A rental space, particularly as new units are delivered, which makes this a tenant-friendly environment. Class A vacancy is currently around 5 percent, with landlords conceding four to six weeks of free rent for recently completed projects.
Conversely, Phoenix landlords are in the driver’s seat when it comes to Class B properties. This asset class is more affordable, and Phoenix has fewer units available. Even with Arizona’s moratorium on evictions due to COVID-19, Class B has not been hit nearly as hard as the luxury properties. Concessions are minimal in this space unless the property was recently renovated and the landlord needs to compete for a full lease-up. In those cases, we see a month concession.
Class C has been the hardest hit both physically and economically due to COVID-19.Landlord market vacancies are trending around 7 to 8 percent, while rental concessions are around four to six weeks, depending on the submarket.
Even during these uncertain times, the multifamily market has remained positive. Contributing factors like population growth, continued rent growth and the risk of losing 1031 exchanges have continued to fuel demand.