The Greater Phoenix multifamily market continues expanding to unprecedented levels with strong tenant demand, lower vacancy and rising rents as new communities are brought online. Conditions of the market are outlined in the Colliers International in Greater Phoenix third quarter report.
“During third quarter, we saw deliveries of new developments pick up, yet this new inventory was balanced with tightening vacancies,” says Pete O’Neil, research director with Colliers International in Greater Phoenix. “Recent quarters of unprecedented strength in our multifamily market have attracted investors to Phoenix in search of multifamily assets.”
The multifamily vacancy rate ticked up slightly in second quarter, which is typical during the summer months. During third quarter vacancy dipped 20 basis points to 5.7 percent. This is unchanged from a year ago. The vacancy in multifamily has been at or below six percent for the past two years.
Rental rates are rising at a healthy pace. Asking rates rose one percent during third quarter, hitting $987 per month. This marks a 6.4 percent increase from one year ago.
Development of apartments has been occurring at record levels for the past several years. Fortunately, the pace of net absorption has closely tracked the rate of construction. Strong demand continues to spur new development. Currently, more than 12,000 units are under construction, up nearly 60 percent compared to a year ago. An additional 16,000 units are planned in Greater Phoenix. Construction in the past few years has been focused in just a few key areas. Vacancy tightening and rent escalations have now reached a level to justify development in a large collection of submarkets throughout the Valley.
Investment conditions in the Phoenix multifamily market strengthened during third quarter. Sales velocity rose, along with the median price of an apartment unit. Cap rates compressed to an average 5.4 percent in third quarter. During the last three months, the average price per unit sold was $125,800.
Colliers International anticipates a strong completion of 2017 for the multifamily market and forecasts a favorable 2018. Vacancy is expected to remain low, but not decrease much below current levels. Strong tenant demand due to job growth and in-migration will fuel absorption of new developments. The investment market traditionally is strong in fourth quarter. While some investors are wary of future tax policy changes, the fundamentals of the Phoenix multifamily market are strong and should remain so for at least the next 18-24 months.
