Phoenix Metro Apartments
February 20, 2015
By Pete Te Kampe
In 2014, industry professionals in the Phoenix metro apartment market felt as though their space was experiencing auspicious conditions. This was due to rising rents, escalating property values, plummeting vacancies, booming construction, increasing lending, intensifying investor demand and waning concessions. Recently, the most frequently overheard concern expressed by industry professionals is whether our market is exposed to the risk of becoming overbuilt. Through a fact-based assessment of what occurred in 2014, this article examines the Phoenix metro apartment market in terms of trends which affect the ability of any given asset or portfolio to generate rental revenue.
Fourth quarter 2014, recorded the highest-average asking rental rate in Phoenix metro apartment market history. Mathematically weighted average asking rents stood at $808, which is $37 higher than fourth quarter 2013 rents. This increase is the largest YOY gain since first quarter 2007. Three submarkets recorded average rents above $1,000 for the period, while fourth quarter 2014 marked the tenth consecutive quarter of YOY rental increases. Rental rates have risen due to an improved economy, lack of alternative housing in the owner-occupied housing segment and the addition of 5,658 new units added to the Phoenix area multi-family stock during 2014. New additions to inventory took place in nine submarkets. All nine submarkets logged an increase in vacancy rates in fourth quarter 2014 than they did in fourth quarter 2013.
Fourth quarter 2014 vacancy for the Phoenix metro area stood at 7.5 percent. The period represented the 20th consecutive quarter of YOY quarterly vacancy declines. In fourth quarter 2013, Phoenix area vacancies stood at 7.9 percent. Of the 30 submarkets that compose the Phoenix metro area apartment space, 19 had lower vacancies in fourth quarter 2014 compared to fourth quarter 2013. The highest vacancy rate for the period was recorded in the South Scottsdale submarket, which had a vacancy rate of 17.5 percent. In the fourth quarters of 2012 and 2013, South Scottsdale’s vacancy was 5.2 percent and 11.8 percent, respectively. Vacancies in this submarket was directly related to the addition of 694 units in 2013 and 1,259 units, the most of any submarket, in 2014.
In 2014, the Phoenix metro area added 5,658 units, the most since 2009 when the metro area added 6,658 units. There were 32 projects comprising 7,773 units under construction as of fourth quarter 2014. If all are delivered to the market in 2015, it will be the most number of units added to the Phoenix area in any year of the last decade.