The Phoenix multifamily market has turned into a blooming desert for investors and apartment owners as low business costs and great weather has turned into a magnet for companies relocating from nearby California, pushing healthy demographic trends and boosting housing demand in the process, according to a new report from Yard iMatrix.
Rents rose 4 percent year-over-year as of April 2018. The company says they expect Phoenix rents to grow by 5 percent in 2018.
The pace of rent growth was well ahead of the 2.4% national rate, while the rental amount trailed the $1,377 national average.
Phoenix Multifamily market rent trends
Phoenix rents rose 4.0% year-over-year through April to an average of $1,048. While the metro’s pace of rent growth was robust and well ahead of the 2.4% national rate, the rental amount was still below the $1,377 national average. Rent growth has stayed elevated due to healthy demographic trends and above-average employment, according to the Yardi Matrix where reports can be downloaded here.
- The Renter-by-Necessity segment led growth, up 5.5% year-over-year through April to $850. The Phoenix metro has traditionally been dominated by the single-family market, but recent development activity has skewed multifamily, as the relocation of various financial, professional services and manufacturing firms has resulted in a surge of rental households. Rents in the higher-end Lifestyle segment rose 3.0% to $1,237 over the same interval.
- Rent growth was positive across the board, led by Central West Phoenix (10.7%) and Northwest Phoenix (7.6%). The most affordable submarket is Central West Phoenix, where, despite the significant increase, the average rent was $685 in April. The highest rents were registered in Sky Harbor ($1,447), South Scottsdale ($1,375) and North Tempe ($1,359). Least affected by the rent surge was South Paradise Valley (up 0.4%). The occupancy rate for stabilized properties was 94.9% as of March. We expect rents to grow 5.0% in 2018.
Phoenix job growth among best in the country
Even though it is slowing, employment growth in Phoenix continues to be among the strongest in the country, up 2.7% year-over-year, well ahead of the 1.6% national average.
- Phoenix added 60,000 jobs in the 12 months ending in February, while unemployment hovered around the 4.0% mark, roughly on par with the national rate.
- The education and health services sector led growth, with the addition of 14,700 jobs, followed by the construction sector, which gained 9,900 jobs and registered the highest year-over-year change (8.9%). The two sectors go hand in hand—aside from the robust multifamily development pipeline, Banner Health has 322 active construction projects totaling $1.9 billion, most of them throughout the state of Arizona, including the $418 million Banner-University Medical Center Phoenix, under construction since 2014 and slated for completion in 2020. Manufacturing is also on the rise, having added 6,800 jobs, a trend that is somewhat contrary to most major metros.
- Demand for office space is boosted primarily by company relocations; at 19.2%, the vacancy rate reached its lowest point since 2008, per JLL. Currently, Phoenix has 2.4 million square feet of space underway, 1.7 million square feet of which is slated for completion within the next 18 months. The first quarter of 2018 had more than 150,000 square feet of net absorption, according to CBRE.
Gilbert and North Tempe lead submarket development
Some 2,350 units were delivered in 2018 through April, 0.8% of total stock, 10 basis points above the national average. The consistent number of completions through April could signal a near-cycle peak, especially since more than 7,600 units are expected to be delivered for the entire year.
- Roughly 16,600 units were underway in Phoenix as of April, while the overall multifamily pipeline included 26,000 units in the planning and permitting stages. Robust incoming inventory doesn’t raise the problem of oversupply, as deliveries are rapidly absorbed, due to the metro’s strong demand. Occupancy in stabilized properties was 94.9% as of March, roughly in line with the nationwide trend.
- Construction activity is high across the map, as six submarkets had more than 1,000 units underway in April. Gilbert led the way with 2,590 units, followed by North Tempe (2,345 units), Sky Harbor (1,954) and Union Hills (1,434). The largest multifamily property underway in Phoenix was the 1,069-unit Camden North End, owned by Camden Property Trust. The community delivered a first batch of 441 units in March.
This report is courtesy of Yardi Matrix. These and other highlights are summarized in a new Yardi Matrix report, “Phoenix: The Desert Is Calling,” a microeconomic analysis of the metro’s multifamily market. Get other Yardi Matrix downloads here.
For more information contact:
Paul Fiorilla Associate Director of Research Paul.Fiorilla@Yardi.com (800) 866-1124 x5764
Jack Kern Director of Research and Publications Jack.Kern@Yardi.com (800) 866-1124 x2444
About Yardi Matrix
Yardi Matrix, formerly known as Pierce-Eislen, Inc.®, was founded in March, 2000, and acquired in July 2013 by Yardi Systems, Inc., a Santa Barbara, California software company focused on commercial real estate industry applications.
The Yardi Matrix apartment information service is a high-performance system with the sole function of supporting the commercial apartment industry’s dominant participants. The company’s services monitor the 50+ unit apartment universe from the property level to the submarket/market level in a form unique within the commercial apartment information industry.