Phoenix MSA 1Q 2017 Multifamily Review: Of Population, Jobs & Development Types

PHOENIX - May 1, 2017 - PRLog -- The Phoenix MSA multifamily market had another stellar first quarter fueled by both robust jobs and population growth.  In fact, Maricopa overtook Texas' Harris County as top spot for population growth adding 81,000 people, an average of 222 new residents per day, between July 1, 2105 to July 1, 2016.  Total nonfarm employment grew by 2.7% led by the leisure/hospitality (+6.2%), financial activities (+6.1%), and education/health services (+2.9%) industries.

Major job/economic announcements for Phoenix, as referenced on the map located on Page 6 of this report, are Intel's plans to invest $7 billion into its Chandler manufacturing plant and hire 3,000+ over the next several years.  Other 2016 thru 1Q announcements include: JPMorgan Chase's plan to build a new regional office hub at Tempe's Discovery Business Campus which will house up to 4,000 employees, ADP's new Tempe office to bring 1,500 jobs, Santander Consumer USA's regional operations center in Mesa's Fiesta District set to bring 1,000+ jobs, Orbital ATK's Chandler expansion with 500 new jobs, Clearlink's expansion into Downtown Scottsdale with 500+ jobs, Rogers Corp global HQ move to Chandler and Kudelski Group's international HQ move to Phoenix just to name a few.

Although Phoenix's emergence from the Great Recession took longer than most expected, beginning in the latter half of 2015 through YTD, Phoenix has experienced a downright boom in job and economic development announcements.  At the end of 2016, according to WalletHub's analysis of the 150 biggest cities in the country, five (5) Phoenix MSA cities cracked the Top 20 of best places to find a job: Scottsdale (#1), Chandler, (#7), Tempe (#9), Peoria (#11) and Gilbert (#18).

Phoenix Market Metrics: Got Sales?

The MSA's total sales volume (10+ unit properties) increased 28%, year-over-year, to $780.87 million across 74 transactions representing 7,908 total units sold.  California-based investors continue to be the dominant buyer of multifamily properties in the Valley accounting for 31% of total units transacted or 2,486 units, Arizona-based investors came in 2^nd with a little over 1,000 units purchased and, rounding out the top five: (#3) Utah-investors with 976 units purchase, (#4) Canadian investors with 874 units and (#5) New York-based investors with 772 units.

Sales of 100+ unit properties led the multifamily investment landscape increasing 35% y-o-y to $684.3M with a marginal contraction in average price per unit amounts of approximately (7%) to $101,789.  Whereas 100+ unit properties saw sales volume increase and price per unit amounts decrease, 10 to 99 unit properties saw its volume dip (6%) to $96.5M with a surge of 34% in average price per unit amounts to $81,472.  Reason for the average price per unit increase stems, in large part, to smaller, extensively repositioned properties coming back online for sale.

How Does Development Type Affect Deliveries?

As with much of the country, Phoenix area construction deliveries continued to increase rising 37% to 1,794 units delivered.  As a result of increased deliveries, particularly in the Mid-to-High Rise building type category, resulted in an Occupancy Rate contraction of (0.7%) to 94.9%.   As noted in our August 11, 2016, ABInsight article, "Phoenix Rising from the Garden-Style Apartment Community," Phoenix is in the middle of a development type maturation, i.e. from one primarily focused on Garden-style to one more dominated by Mid-to-High Rise developments.  For context, at the end of 2015, the Phoenix Metro was home to 29 Mid-to-High Rise developments accounting for 7,062 units.  By the end of 2016, that increased to a total of 42 developments representing 10,057 units which is a 42% y-o-y increase.  Of the projects currently under construction (50+ units in size, with delivery through 2019/20), the Mid-to-High Rise category is set to nearly double with the addition of 37 projects or 10,216 units.

Phoenix's trailing 5-year unit delivery rate average had been trending in the 30 to 40 units per month per project through early-2016 which was nearly 70% below peak, pre-Great Recession delivery amount of 120 to 150 units per month.  However, as taller projects have hit the market average delivery rate has increased almost 100% to approximately 70 units per month.  The net result of increasing delivery levels led to the contraction in occupancy seen at the end of 1Q 2017.  Despite the slight occupancy contraction, average rent for the MSA increased 5.6% to $977.

Going forward, it should be expected that the average delivery rate of units will increase towards the 90 to 110 units per month per project range which should have a corresponding impact on occupancy rates and concession amount offered by developers.  Nonetheless, Phoenix area developments averaged a lease rate of 17 units per property per month, a 30% y-o-y increase, by end of 1Q 2017.  Although Phoenix saw an increase of 15% in the amount of units under construction, 'Planned' projects witnessed their largest five year contraction dropping some (27%) to its current 14,834 units....

To view the entire report please go to: http://abimultifamily.com/abinsight-phoenix-msa-multifamily-1q-2017-quarterly-report/

ABI Multifamily is the Western US's leading multifamily brokerage and advisory services firm that focuses exclusively on apartment investment transactions. The experienced advisors at ABI Multifamily have completed billions of dollars in sales and thousands of individual multifamily transactions. ABI Multifamily incorporates a global approach with regional real estate expertise to successfully complete any multifamily transaction, regardless of size and complexity.