Has The Ship Sailed On Multi-family Or Is It Full Steam Ahead?
Since 2010, it’s been difficult to ignore the strong tailwinds behind the multi-family market in Phoenix as thousands of units have traded hands, rapid appreciation has been realized, and now thousands of units are in various stages of construction.
Despite any evidence, many have prematurely predicted or anticipate a softening in the market.
To the contrary. Mounting evidence exists that not only is the Phoenix multi-family market solid, but it should be strong for many years to come. Investor appetite remained strong with recent transactions totaling approximately 3,000 units of Class A properties, including CityScape at Lakeshore (Tempe), Broadstone Ahwatukee Fairways (Phoenix), Dobson Towne Center (Chandler), Brookstone at the Foothills (Phoenix), Tempe Groves (Tempe), Pillar at San Tan (Gilbert), and Coldwater Springs (Avondale)
With prices still more than 20% off of 2007 peak prices, investors anticipate additional appreciation, buoyed by, yet another, 2,000 units currently in escrow including Scottsdale’s Montierra, The Fairways and Villa Pallavicini in Chandler, The Palms on Scottsdale in Tempe and Phoenix’s The Retreat at the Raven.
Investor optimism is well-founded. First, rental rates are well below the highs of early 2008 and occupancy is getting tighter due to lack of supply. According to Dallas-based Axiometrics, Phoenix recently ranked in the top 10 Metros with the highest occupancy.
Second, the job market has become more diversified, not relying on construction jobs to drive the market, but diversifying into high technology and biotech. Lastly, with the housing across the nation improving, households who had planned on moving to Arizona have the opportunity to sell their house in other markets.
We have not yet fully realized the benefits of this population growth, but according to U-Haul’s List of Top Destinations, Phoenix now ranks 14th in the country. Aiding this trend, Phoenix’s home market was recently ranked as the fourth most affordable housing market by Intrest.com.
So strong is investor and tenant demand that an additional 30 projects totaling 6,300 units are currently under construction or have been completed in the past 30 days. An additional six notable projects will be under construction shortly, but the big surge in construction may still not be experienced until 2013.
The frenzy of development activity has been magnified by such highly recognized sites closing toward a completion date; sites such as Optima Sonoran Village at 68th St. and Camelback and Alliance Residential’s Broadstone on Camelback (and 26th St.)
Other high-profile projects already cleared or about to be prepared for construction starts in the next several months include the PB Bell’s Liv Apartments at Scottsdale Quarter and two additional Alliance Residential projects at Lincoln and Scottsdale roads and the 4-acre, high-rise parcel just south of the Scottsdale Fashion Square (Broadstone at Waterfront).
Mark-Taylor is also busy on numerous sites including the Norterra project in North Phoenix and the Fiddlesticks site on Elliot Road in Tempe.
With so much momentum, transaction velocity, pending sales, development of additional inventory and strong area fundamentals; multifamily will continue to lead the commercial real estate market and sail toward the horizon.
Rue Bax is a Senior Vice President at ORION Investment Real Estate and co-founder of The Orion Multifamily Group. Throughout his 10+ year career he has specialized in large apartment transactions and has closed more than 50 marketed and off-market Arizona multi-family properties. He may be reached at firstname.lastname@example.org.