The Greater Phoenix multifamily market experienced a mixed second quarter, but investment activity commanded the most attention, according to a report from Colliers International in Greater Phoenix. Sales were quite active and prices spiked as newer, more expensive projects changed hands.
The second quarter is typically weak for the multifamily market in Phoenix as seasonal residents move to cooler locations during the heat of the summer. The past three months were stronger than usual for a second quarter, though vacancy did rise despite active expansion of the economy.
Vacancy rose 50 basis points during second quarter, finishing the period at 5.9 percent. This rate matches one year ago and Colliers sees signs of leveling off. As of second quarter, vacancy posted year-over-year improvements in only 15 submarkets, while 14 submarkets posted vacancy increases.
The driving force behind these vacancy increases is completion of new developments. More than 2,300 units were delivered during second quarter. Year-to-date completions are up 18 percent over the first half of 2017. More new units are on the way, with more than 11,000 units currently under construction in 19 different submarkets. This was the sixth consecutive quarter when the Metro Phoenix market has had more than 10,000 units under construction. New inventory will significantly impact the market for the next 24 months.
Asking rents are on the rise, posing a second consecutive quarter of more than two percent. The current average asking rate is $1,046 per month or $1.22 per square foot per month. Year-over-year, asking rents have risen by 7.1 percent.
Sales of multifamily buildings gained momentum in second quarter and prices posted record gains. Several newer complexes traded hands last quarter, driving the median price to nearly $164,000 per unit in second quarter. More than 20 percent of the properties sold from April through June were complexes constructed since 2015. These newer projects commanded a median price of more than $230,000 per unit. Cap rates averaged approximately 5.1 percent.
The forecast for Phoenix’ multifamily market remains hot. We just completed the softest quarter of the year and things remain strong. Vacancy is expected to inch a bit lower as we finish 2018, as the second half of the year is traditionally robust. Construction will remain very active. Since 2014 the metro area has delivered more than 32,000 new apartment units, increasing the local inventory by 13 percent.