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Phoenix’s Growth Keeps The Multifamily Sector Hot

Taylor Williams — Sat, 18 Jan 2020 12:59:40 +0000

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…

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Employment, E-Commerce, Experiences Drive Phoenix’s Retail Market

Taylor Williams — Fri, 17 Jan 2020 13:07:33 +0000

Ecommerce and generational shifts in spending patterns have spawned discussions regarding the health and future of retail. However, Phoenix has proven to be one of the most resilient and dynamic retail markets in the country. This resilience is a product of corporate and residential migration from gateway markets due to increasing regulation and costs of living. Maricopa County has been named the fastest-growing county in the country for three years straight by the U.S. Census Bureau, and is forecasted to add another 500,000 people by 2023. This population and income influx has the Phoenix retail market bucking national trends. Consumer sentiment remains at peak 2006 levels despite political uncertainty, without the artificial run-up in home values we experienced leading up to the financial crisis. Average vacancy rates have lingered in the high 6 percent range with active retail construction remaining tempered at around 1 million square feet. This is compared to more than 11 million square feet in 2006. Vacancy may fall into the mid- to high 5 percent range over the next two years — where it was in 2006 — barring any extreme economic events. Triple-net rents have averaged $16.30 per square foot in 2019 and have grown…

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Phoenix’s Strategic Growth Positions Industrial for Success in 2020

Taylor Williams — Sat, 11 Jan 2020 13:15:56 +0000

Phoenix’s industrial inventory is undergoing a period of growth due to the delivery of 2.2 million square feet of new product in the third quarter of 2019 and more than 4.7 million year to date (as of late November). In fact, the market has seen the highest amount of total industrial development year to date since 2007. While these deliveries have increased the industrial vacancy rate slightly, the overall vacancy rate for the area remains low at less than 7 percent. Absorption has been strong and is expected to remain so for the near future. Rental rates also continue to rise, though they are still at a considerable discount to many other West Coast markets. A high amount of development activity is still occurring, particularly in the southern portion of Phoenix. Much of this development is speculative rather than build-to-suit, which indicates developers are confident in the demand for industrial space in this market. Major factors for our growth have been significant job creation and in-migration of both residents and businesses, which have led to growth in industrial and construction jobs in the region. In fact, Greater Phoenix remains one of the top five metros for job creation in the…

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Office Demand Remains Strong in Phoenix, Though Concerns Persist

Taylor Williams — Fri, 10 Jan 2020 13:19:47 +0000

Phoenix experienced 1.8 million square feet of absorption and an overall office vacancy rate dipping to 17 percent by the end of 2019. Now that the New Year is here, the city is poised to continue its positive progression as healthcare, science, technology and the professional office service sector continue to show steady employment growth. Arizona ranked third in the U.S. with 2.6 percent job creation, as of the third quarter of 2019. That’s 74,000 new jobs for the year, including 6,900 jobs in the science and technology sector and 14,000 new jobs in the recession-resistant healthcare sector. Companies are focused on finding cost-effective, business-friendly office environments and submarkets with access to top talent, and Phoenix checks all those boxes. Much of the state’s top talent is Millennials and Generation Z who are increasingly willing to move to lower cost of living cities that boast a high quality of life. Arizona ranked No. 1 in inbound state migration in 2018, with 273,714 inbound arrivals. We expect to see similar positive net migration numbers in 2019. The Census Bureau estimates that Phoenix will be the fourth most populous city in the U.S., with a population of 2.2 million, by the end…

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City of Avondale Targets Growth in Multiple Sectors

Taylor Williams — Sat, 04 Jan 2020 13:28:33 +0000

The West Valley has a strong, talented workforce in the healthcare, finance, insurance and marketing industries, which has led to job growth increasing by 40 percent in the region, according to Westmarc. It’s no surprise that the West Valley City of Avondale, Ariz., located 15 minutes west of Downtown Phoenix, is experiencing pphenomenal growth. Much of this expansion is facilitated by Avondale’s location off two major freeways, including Interstate 10 and the Loop 101. The completion of the Fairway Drive interchange off I-10 in 2020 will only solidify the city’s growing reputation as a Southwest Valley hotspot. Avondale’s city council has also made economic development a top priority. The city’s economic development toolbox is filled with opportunities for developers who are looking to go West. Avondale boasts three Opportunity Zones, infill incentives, a Greater Maricopa Foreign Trade Zone and tax credits, among other economic development incentives. The city is working hard to make itself attractive to developers looking for a region with burgeoning growth and stable leadership. One such investor is the famous Chicago hot dog chain Portillo’s, which recently opened an 8,000-square-foot restaurant in Avondale. Other high-quality restaurants have been cropping up in the busy Gateway area around 99th…

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Phoenix Retailers Move To Be Upfront, Center

Taylor Williams — Sat, 31 Aug 2019 11:57:34 +0000

With all the changes occurring in retail over the past decade, the industry, as a whole, is being transformed before our eyes. These shifts have impacted how new retail development is taking place throughout the Phoenix area. It is also driving a significant change to how retail developers will operate over the next decade. The operational changes are dramatically affecting the prototypes of retailers. These changes are making it necessary for some retailers to relocate from an inline space at the back of a center to an outparcel with street-front visibility. It becomes even more complicated as more and more tenants are demanding a drive-thru. Panera Bread, Chipotle and Starbucks are just a few examples of retailers that have revised their real estate requirements to accommodate a drive-thru. Many retailers are also consolidating their total number of stores or downsizing their traditional physical footprint, which is also impacting centers. Some chains have even waved the white flag and closed their business altogether. These changes are driving the design of new retail projects throughout Phoenix. While the traditional configurations of regional malls, power centers and neighborhood shopping centers will always be a staple, the retailer’s shift to be up front and…

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Phoenix Market Demand Sustains Multifamily Devleopment

Taylor Williams — Fri, 30 Aug 2019 12:01:09 +0000

Multifamily rental demand in Metro Phoenix has been supported by higher education, while job growth has bolstered construction in the core and neighboring suburbs. Arizona State University has transformed the multifamily properties surrounding its large campuses in Tempe, Downtown Phoenix, Glendale and Mesa. The multifamily rental assets in the West Valley submarket have also been rejuvenated by Grand Canyon University. Thanks to these institutions and several others in the Greater Phoenix area, the growing skilled labor force has benefitted from job growth by supporting several Fortune 500 companies that have continued to increase their presence throughout the region. The recent expansions allow more graduates to remain in the Phoenix area and attract many new professionals to the market, ultimately enhancing rental demand in Phoenix and its neighboring suburbs. The rising number of residences has compressed vacancy rates in the metro as thousands of units are absorbed annually. This market demand will support the continued rise in rental prices and spur apartment development in the upcoming years. Apartment development has continued its strong pace in Phoenix. The metro is expanding its rental supply with about 8,250 units finalizing in 2019. Of this year’s deposit, roughly 2,600 units will be added to…

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Phoenix Eyes Industrial Prospects, Industrial Prospects Eye Phoenix

Taylor Williams — Sat, 24 Aug 2019 12:04:16 +0000

Phoenix is known for its strength as a logistics and distribution market. This is particularly true in the Southwest Valley, which has become the poster child for all that makes Phoenix industrial space great: strong population growth, a deep and qualified workforce, an abundance of land and building opportunities, and a lower-cost, business-friendly regulatory environment. As of the second quarter, these benefits helped the Southwest Valley emerge as No. 1 in the nation for industrial prospects looking for space (based on interest from at least 83 tenants with a maximum requirement of more than 30 million square feet). These prospects include national and regional distribution centers, third-party distribution providers, major ecommerce users, and a robust food and beverage sector led by companies like Fairlife Dairy, UFI, Ferrara Candy and Red Bull. It also comes from the reshoring of manufacturing from organizations like Hutamaki, Ball Enclosure and Anderson Windows. Data centers continue to flock to Phoenix as well, purchasing about 2,000 acres over the past 24 months and positioning the Valley among the nation’s top five U.S. data center markets. Data center interests like Microsoft, Vantage Data and Google have selected Phoenix for its low natural disaster risk, ample affordable land…

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Phoenix Apartment Market Remains Red-Hot, Fueling Influx of New Capital

Taylor Williams — Fri, 23 Aug 2019 12:07:38 +0000

It isn’t just temperatures that are scorching in the Phoenix metro this summer. The multifamily rental market is hot as well; and vigorous demand is coming from both renters and investors. Investors are snapping up apartment properties and paying hefty prices. Buyers spent $3.72 billion on 94 Phoenix-area apartment complexes in the first half of 2019, a 41.8 percent jump from the first half of 2018. Sales in the $50 million range experienced the greatest rate of acceleration. The Driving Factors Behind Strong Demand Phoenix is the fastest-growing city in the U.S., according to recently released data from the U.S. Census Bureau. The region saw an increase of 25,288 new residents between 2017 and 2018, topping all other U.S. cities. One reason for that growth is that Phoenix remains more affordable than many other large U.S. metros. People are flocking to the Valley from high-cost, high-tech cities like Los Angeles and San Diego. Phoenix also boasts a thriving job market that includes a fast-growing, high-paying tech sector. Other booming industries include bioscience/healthcare and financial services. In fact, the Phoenix metro led the U.S. for new jobs created from May 2018 to May 2019 with 66,500 non-farm jobs, representing 3.2 percent…

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Phoenix Earns Spotlight on National Stage Among Office Users

Taylor Williams — Fri, 16 Aug 2019 12:12:00 +0000

Greater Phoenix has re-cast itself in this real estate cycle. It is no longer expected to play the “boom-to-bust” role in the office sector. The metro area has definitely expanded its breadth of industries, reaching beyond homebuilding and professional services to now feature some of the country’s leading insurance corporations, technology companies and medical innovators. This diversification promises to buffer any future fall in nationwide economic activity. Greater Phoenix continues to lead the country in job creation, adding an estimated 66,500 net new jobs between May 2018 and May 2019, marking a 3.2 percent increase. These jobs are coming from companies like Carvana, AllState and WageWorks. Phoenix has benefitted from great exposure from in the national media, which has matriculated to corporate America and attracted broad attention. The Greater Phoenix MSA boasts a phenomenal combination of attractive cost of living, growing wages and an enviable lifestyle. This package of appealing factors has allowed Phoenix to garner more than its fair share of corporate expansions and relocations throughout the Western U.S. Demand has been strong for office space in the area. However, a diminishing availability of quality, speculative space is creating a battle for the tenants. Sizable users wanting signature spaces…

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Job, Population Growth Spur Phoenix’s Multifamily Market

Taylor Williams — Tue, 19 Feb 2019 12:49:33 +0000

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. 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…

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Phoenix Is Defined by Land, Labor, Logistics

Taylor Williams — Tue, 12 Feb 2019 12:38:55 +0000

Phoenix has long enjoyed the benefits of land, labor and logistics. In today’s ecommerce-driven market, however, those benefits are propelling the Valley’s industrial activity, and opportunity, to new heights. The region has absorbed more than 5.8 million square feet of industrial space year-to-date. It has also welcomed almost 5 million square feet of new industrial construction, while industrial vacancy rates still sit below 7 percent — their lowest levels in 12 years. Some of this activity can be credited to the price and availability of our land. This typically involves large parcels in the West Valley within close proximity to freeways that are often available at $5 per square foot to $6 per square foot. This is attracting tremendous big box interest, particularly in the Southwest Valley submarket where much of the metro’s more than 5.7 million square feet of new construction is occurring. Lincoln Property Company delivered one of the largest of these developments this past December: the $85 million, 901,700-square-foot Lincoln Logistics Center 40. Underscoring high confidence in the industrial sector, Lincoln Logistics 40 was developed fully speculative with amenities that target ecommerce and logistics-focused users. Among these are 40’ clear height ceilings, sophisticated cross-dock configuration, and extensive…

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Collaboration is More Vital Than Ever to Keep Construction Schedules on Track

Camren Skelton — Tue, 28 Mar 2017 11:45:52 +0000

With commercial construction activity up by double digits in 2016 and projected to increase another 5 percent in 2017, the industry continues to keep a keen eye on labor shortages and construction costs. This rings even more true in the face of today’s increasingly stringent financing requirements — a critical project element that can push construction schedules out by months and, in the process, create challenges with accurate pro forma data, true labor schedules and pricing. The balance between schedule shifts and a backlog of work has proven particularly challenging for the entire industry, and presumably shows no sign of relief. For optimal success, teams must diligently focus on cross-functional communication, design-build principles and early strategic planning to protect from the pitfalls of 2017’s momentum. Focusing on this early planning gives clients two of the greatest advantages available in our current building climate: a forum for unearthing issues proactively and time to plan for solutions. In cases where design-build isn’t possible, teams can still capture the benefits of this concept by getting the right knowledge leaders at the table early on, providing significant results to project cost savings, resource management and logistics planning. The Labor Issue While the industry jockeys…

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Demand, Product Coming to Phoenix’s Multifamily Market

Camren Skelton — Tue, 14 Mar 2017 11:45:07 +0000

With record-low cap rates dipping as far as 2.9 percent, the nation’s top multifamily markets have become expensive. In response, investors have turned to secondary markets like Phoenix, where upside potential is still strong, pricing is manageable and cap rates are hovering in the high 4 percent to mid-5 percent range. Although multifamily sales have maintained their accelerated pace nationwide, that pace is being driven by secondary markets — particularly in the West. Metro Phoenix captured more than $5.2 billion of this activity, up significantly from its previous peak of $4.6 billion in total multifamily sales in 2006. As of year-end 2016, the average multifamily price per unit in Phoenix was $110,000, compared to a national average of $145,000 for properties valued at more than $2.5 million. In the eyes of investors, Phoenix offers a stable inventory of existing Class A and B product, and a wave of new Class A units that have taken luxury in the market to a new level. This high-end product provides a key benefit for investors: it attracts residents who are willing and able to pay premium rents for a better lifestyle. The Valley is in a good position to support luxury product, with…

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DiamondRock Acquires L’Auberge, Orchards Inn Resorts in Arizona for $97M

Nellie Day — Wed, 01 Mar 2017 13:00:04 +0000

SEDONA, ARIZ. — DiamondRock Hospitality Co. (NYSE: DRH) has purchased the 88-room L’Auberge de Sedona and the adjacent 70-room Orchards Inn Sedona for a total of $97 million. The resorts are situated in the Red Rock region of Sedona on the banks of Oak Creek, just south of Flagstaff. DiamondRock plans to reposition the resorts through a $5 million capital investment plan, which will enhance the luxury cottages at L’Auberge, among other improvements. The renovations will be completed during the off seasons over the next two years for minimal disruptions. “This acquisition represents a rare opportunity to own two high-quality resort properties in a coveted, high-barrier-to-entry resort market,” says Mark Brugger, DiamondRock’s president and CEO. “While we believe the initial pricing of the deal is attractive, we have identified significant opportunities to increase profitability.” About $14 million has been invested in the resorts, its guest rooms and restaurants since 2015. Sedona is one of the highest growth markets in the U.S. hospitality industry, DiamondRock notes, with RevPAR (revenue per available room) increasing 11.3 percent in 2016. L’Auberge includes dining options Cress on Oak Creek and Etch Kitchen & Bar, while Orchards Inn features 89Agave Mexican restaurant, among other casual dining…

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Tech Takes Hold in Phoenix

Camren Skelton — Tue, 25 Oct 2016 11:45:21 +0000

One of the newest trends in Phoenix office leasing is the spur in technology and creative space requirements, especially for tenants moving in from Northern and Southern California. These companies are searching for a more favorable market — one with lower labor costs and rental rates, more affordable housing, an educated workforce from which to draw, less traffic and an overall higher quality of life — and the Phoenix area fares well comparatively. I expect this trend to continue, especially in the downtown markets of Phoenix, Tempe and Scottsdale. Strong leasing activity throughout the Phoenix market this year resulted in robust absorption, with Class B product leading the way. There are numerous large tenants currently in the market seeking to lock up space, which will keep demand elevated throughout the remainder of the year. Healthcare and financial services industries are committing to the market, especially with larger-scale operations centers. Parking needs for these users are 6:1000 and greater. Tempe remains a hot spot for development, with two new high-profile speculative projects underway — the Grand at Papago Park Center (213,055 square feet) and 2100 Rio Salado (102,819 square feet). Two new buildings were completed this quarter at Tempe’s Marina Heights…

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Retail Occupancy Rises in Phoenix

Camren Skelton — Tue, 18 Oct 2016 11:45:08 +0000

As we approach the fourth quarter of 2016, the Phoenix retail market is experiencing its lowest vacancy rates since 2008. Vacancy has dropped to just under 9 percent, a slight improvement from the start of 2015, while rental rates have climbed 0.8 percent to $14.53 per square foot. Positive economic indicators such as population growth, a favorable job market, and new-home construction are all contributing toward a healthy retail market in Phoenix. Consumer confidence continues to rise and demand for retail space has become stronger than previous years. Vacant spaces in core locations are being absorbed by national, regional and local retailers as well. Anchor space activity continues to be geared around value-oriented retailers, fitness users, family entertainment concepts and alternative uses. Quick-serve restaurants are the most active tenants in the market. These concepts include Panera Bread, Starbucks, Café Rio, Pieology, MOD Pizza and Jimmy John’s. In addition, new health-conscious restaurants are starting to look at Phoenix for store openings in 2017, such as Ahi Poki, Eat Fit Go, Grabba Green and Nekter. Supermarkets are driving new development in core trade areas of Phoenix, as well as in high-growth markets. Fry’s Food & Drug has started construction on seven new…

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Industrial Owners Delight in Phoenix’s Thriving Market

Camren Skelton — Tue, 11 Oct 2016 11:45:53 +0000

The Phoenix industrial market is thriving, despite more than 5.6 million square feet of new construction set to deliver this year. There is enough demand in this market to keep the average vacancy rate at a near eight-year low of 9.7 percent, while absorption is on pace to exceed 6 million square feet for the third year in a row. Tenants have more choices than ever thanks to all this new inventory. Many are making a flight to quality, upgrading to next-generation space featuring wide column spacing and clear heights of up to 36 feet. This is particularly valuable in the West Valley, where large, efficiency-focused, third-party logistics firms and e-commerce companies must maximize how they manage vast amounts of product. Some of these needs are so specific that corporations have opted to custom build, as is the case with the recently completed 400,000-square-foot REI distribution center and the 384,377-square-foot IRIS USA facility, both situated in Surprise. These projects rank as the Valley’s two largest owner-builder completions of the year and have propelled the Northwest submarket — the third smallest industrial submarket in metro Phoenix — into the “hot” category. Meanwhile, owners and builders have gotten more creative in centralized…

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Renter, Investor Demand on the Rise in Phoenix’s Multifamily Market

Camren Skelton — Tue, 04 Oct 2016 11:45:11 +0000

The Greater Phoenix multifamily market continues to thrive in a high-demand environment, driven by strong tenant volume and investor interest. As the local economy expands, employers are adding workers at a steady pace while demand for housing is on the rise. Apartments remain the preferred choice for many, pushing multifamily vacancy rates low even as new units are added to inventory. We fully anticipate these conditions to continue in the year ahead. Multifamily vacancy in the Greater Phoenix market ended the second quarter of 2016 at 5.9 percent, 20 basis points lower than one year earlier. Vacancy typically ticks higher in the second quarter, as some part-time residents escape the summer heat wave. This trend occurred again this year. Despite the recent seasonal rise, vacancy has been below 6 percent for the past four quarters, and the rate will undoubtedly tick lower in the second half of this year. The low-vacancy conditions are fueling robust rent growth. Asking rents have spiked by more than 8 percent in the past year, while the pace of gains is accelerating. Asking rents rose more than 5 percent in the first half of 2016, with additional increases anticipated in the months ahead. More than…

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Phoenix’s Industrial Market Offers Opportunity

Nellie Day — Tue, 25 Aug 2015 06:59:14 +0000

Owners, investors and developers are bullish about the Phoenix industrial market – and for good reason. We occupy one of the most strategic supply chain locations in the West – a sweet spot between West Coast ports, manufacturing in Mexico, and alongside truck and rail routes leading product into the heart of the nation. Add to this Governor Ducey’s mandate to grow Arizona’s trade volume with Mexico by 20 percent per year – not to mention Mexico itself being on the verge of becoming the world’s largest manufacturer – and you have a Phoenix market entering a new era of long-term growth. This has expanded our already robust industrial construction industry, where design-build is hot and will likely stay that way, thanks to the 8 million square feet to 10 million square feet of industrial requirements seriously considering Arizona for their location solutions. For energy-centric companies with high employee head counts in particular, Arizona offers as much as a 30 percent to 40 percent savings proposition over higher-cost Tier 1 markets. The West Valley has welcomed 10 million square feet of larger build-to-suit corporate projects looking for specialized footprints and visibility along I-10 in the past three years. These include…

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