— By John Kobierowski, President and CEO, ABI Multifamily —
As we enter a New Year, investors are looking for multifamily markets that will continue to offer consistent returns and stability. Thankfully, Phoenix is still regarded as one of the darlings of the multifamily markets. Investors from both coasts are talking to us about the Phoenix market again after not having invested here in a while — or, in some cases, ever. They say they’re realizing Phoenix just might be one of the few markets with predictable multifamily growth.
Companies locating in Phoenix are creating tremendous job growth. For example, Taiwan Semiconductor recently announced an investment increase in the manufacturing plant it’s currently building in Phoenix — from $12 billion to $40 billion. That might be one of the largest single investments in the U.S.
John Kobierowski, President and CEO, ABI Multifamily
We’re eagerly anticipating the Southwest winter and spring events that draw the envious attention of a national audience, including WM Phoenix Open golf tournament, Super Bowl, Barrett Jackson collector car auction and Cactus League Spring Training. Our bright, sunny skies, green grass, and smiling people in t-shirts and flip flops will stand in stark contrast to those stuck in freezing cold winter temperatures and paying expensive home heating costs.
A few additional factors bode well for multifamily values in the Phoenix metro in the next few years. First, we foresee a drop-off in the construction pipeline with actual Phoenix multifamily deliveries considerably decreasing into 2024 and 2025. A tightening of bank underwriting, retraction of lending and the high cost of lending means we are not seeing the same number of projects coming into the planning phase. As a result, whatever vacancy rates we’ve been experiencing should tail off quickly, bolstered by surging Phoenix population growth.
The single-family home market is also hurting. Builders of single-family homes are likely to slow down developments due to decreased demand caused by higher mortgage rates, which will push more people to rent. More investment dollars will flow toward the U.S. and Arizona from international investors experiencing the limited returns in their home markets from rising fuel and energy costs in Europe to feeling the pressure to meet investment returns.
While my outlook for Phoenix multifamily is decidedly bright, there are some challenges. The massive crypto-currency failure will send shock waves through the investment community into 2023. People will be more careful about what they get involved in, and investors will be more cautious with any investment opportunity. They will ask more questions and not take anything for granted. Inflation also continues to be something to watch in Phoenix. Arizona is experiencing almost 13 percent inflation, one of the highest rates in the U.S.
So, what sort of deal volume do we expect? Fourth-quarter results will be lower than last year due to stricter lending and fewer deals closed as investors wait for the market to stabilize. I expect interest rates to eventually go down as we head into the first and second quarters of 2023. By the end of 2023, I expect Phoenix multifamily to generate increased investment activity and positive returns to investors.