Phoenix Multifamily Continues Its Upward Trajectory
By Drew Ricciardi, Research Manager, ABI Multifamily Research Manager
Following a chaotic year that left investors on the sidelines, the Phoenix market proved resilient. In fact, it ended up witnessing one of the most significant rebounds nationally. The Phoenix multifamily market exploded with a record start for 2021 and is now considered one of the top multifamily markets in the country.
Phoenix continues to see robust population increases due to job growth, quality of life, industry diversity and affordability. According to a Redfin study, the Phoenix metro market had the highest population net inflow in 2020 of all U.S. metros. Phoenix benefited from the work-from-home phenomenon due to COVID-19, which resulted in high-paid workers fleeing high-priced, high-density markets for more affordable markets offering more spacious living options.
Not only are people migrating to Phoenix, but the area is becoming a prime spot for company headquarters and advanced facilities. The metro area’s educated workforce, strong talent pool, business-friendly tax environment, and affordability are all key factors. Taiwan Semiconductor Manufacturing Co. plans to invest around $35 billion in new Phoenix facilities. This is the most substantial direct foreign investment in Arizona to date. The investment will have significant ripple effects on the city’s economy in terms of job growth, development and seeing more companies following suit. Add to this consistent rent growth and high-occupancy levels in the Phoenix multifamily market, and this area has become a prime investment target.
Multifamily sales volume is up dramatically in Phoenix compared to previous years. The first half of 2021 represented a 175 percent year-over-year increase against the first half of 2020. Comparing the same period to the first six months of 2019, this year showed an increase of 41 percent in the same metric.
The average rent per unit for the Phoenix MSA was $1,413 in the second quarter of this year, with a high average occupancy rate of 96.3 percent. Both metrics witnessed sizable increases year-over-year.
Multifamily development in the Phoenix MSA also remains active. Demand continues to outpace supply, compounded by high construction costs and national labor shortages. These are due to an imbalance in the supply chain resulting from COVID-19.
Build-to-rent communities, a hybrid concept that involves traditional single-family detached units in a large rental community with luxury amenities, continue to be a hot trend that developers are pursuing. The Phoenix market is ideal for these communities due to its flat landscape, available land and high demand for rentals. Large development companies like Christopher Todd Communities and NexMetro Communities helped pioneer the model, and plans to expand this popular concept are now sprouting across all corners of the Valley.
Multifamily development is not centralized in one specific area or submarket in Phoenix. However, it’s important to note the concentration of multifamily construction in the downtown Phoenix corridor is helping to fill in the sprawling and spacious city.
Expect Phoenix multifamily to continue to grow and prosper throughout 2021 as its extremely favorable demographic and economic trends persist, barring any significant economic events.