Phoenix’s Growth Keeps The Multifamily Sector Hot
Stemming from the ashes of 2009 — a decade later and a decade wiser — Phoenix and the surrounding Maricopa County has exploded to outpace the national averages in both rent and job growth. In fact, the entire State of Arizona is booming in population growth and job production. The Census Bureau just released its American Community Survey “One-Year Estimates” in which Arizona was named the fastest-growing state in the nation with a year-over-year growth of 2.2 percent.
The Phoenix MSA also experienced a 2.6 percent increase (as of October 2019) from the prior year ranking when it came to the largest job gains in the education and health services industries. The state also boasts a tax-friendly environment, pro-business governor, competitive workforce and one of the youngest median age populations in the country at 35.4. This has attracted a broad array of financial services, healthcare, manufacturing and tech companies that have been moving to Phoenix in droves, making Phoenix a diversified and balanced economy that is different than years’ past.
What does all this mean? The need for housing is paramount and multifamily investors are reaping the benefits. Phoenix is able to absorb the roughly 7,500 new units developers are bringing to market each year, while maintaining a tight overall vacancy of 5 percent to 6 percent. Phoenix even leads the nation in multifamily rent growth with an average monthly effective rent of $1,150 as of the third quarter of 2019, compared to $1,008 at the end of 2018.
Several key developments have dominated Phoenix’s real estate spotlight. The long-awaited redevelopment of 44th Street and Camelback was recently announced as a $300 million mixed-use project by RED Development. It will include attractions like the new NBA and WNBA’s 50,000-square-foot training facility and local restaurateur Sam Fox’s boutique hotel that includes condo residences and a rooftop lounge, among other components. Another massive project is the Downtown Transit Hub, a $231 million mixed-use project that’s being developed by Electric Red Ventures at 300 North Central Ave. This asset will feature a 300-unit apartment community, 150-room hotel and 35,000 square feet of office space, in addition to other components.
With the strong job market, increasing wages, net migration and demand for urban infill apartment communities, the forecast for the Phoenix multifamily market will remain strong as these fundamentals will carry into 2020. Rents will continue to increase due to heavy demand for Class A apartment communities, which will drive some existing tenants into Class B product in the immediate surrounding area. This may further prolong the redevelopment trend that has dominated central Phoenix for the past seven years. Given this trend, landlords will continue to be in the driver’s seat with no need to offer concessions as they will have a deep pool of qualified residents for the foreseeable future.
— By Patrick O’Meara, managing principal Taylor Street; Brian Tranetzki, principal, Taylor Street. This article first appeared in the January 2020 issue of Western Real Estate Business magazine.