Multifamily: Responding to Demand
Industry News, Market Update, Property Management
March 28, 2016
Senior Managing Partner, ABI Multifamily
Thomas M. Brophy
Director of Research, ABI Multifamily
As of the end of 2015, the Phoenix metro multifamily market surpassed $3.8 billion in total sales volume. This is up 34 percent Y-O-Y and almost 265 percent from 2010 sales volume reaching a total of just over $1 billion. As you track the Phoenix market trajectory since 2010, huge gains have been made in the multifamily market as an asset class. First, the Phoenix metro vacancy rate has dropped to an all-time low of 5.2 percent; nearly 5 percent below historical operating conditions. Second, average rents across Phoenix metro have increased nearly 30 percent over the same time period. The chart below provides some insight on the impact to rental submarkets.
There are multiple forces at play fueling the Phoenix MSA multifamily market demand including:
Phoenix metro has gained approximately 282,000 persons since 2010 – nearly a 7 percent increase. Overall growth is lower than historical standards which trend to 10 percent+; however, Phoenix metro is now ranked the 2nd in the nation for domestic migration.
Although job growth rates across the country have been rather tepid leading out of the 2008 and 2009 Great Recession, the Phoenix MSA neared a 3 percent annualized job growth rate at year end 2015. Much of the job growth is found in Downtown Commercial Business Districts (CBDs) including Downtown Phoenix, Old Town Scottsdale, Tempe and the Fiesta District in Mesa. Collectively, these areas have witnessed over 15,000+ total job announcements alone – many of which pay $45,000+ per year. Corporate headquarter relocations to Phoenix, such as Carlisle Cos. Inc., combined with aggressive courting by Arizona economic development officials have made a big impact on the demand for multifamily housing.
Renter Household Formation
Even more fundamental than population growth has been the absolute explosion of ‘Renter Household’ formation since 2005. From 2005 to 2013, Renter Household formation skyrocketed by 34 percent. If current population estimates hold true, Phoenix metro is now closer to 45 percent. This growth impacts over 175,000 households representing a combined population of approximately 450,000 persons.
The above chart shows the top 5 submarkets within the Phoenix MSA for percent of renter population. Those same submarkets, specifically North Tempe/University and Central Phoenix, are the epicenters of our current construction boom. Populations in these areas have risen substantially over the last decade and are projected to continue to rise in years ahead.
Single-Family Residential (SFR)
The “for sale” single-family home market, although certainly more robust, has not fully recovered from the Great Recession. The combination of this factor with the ongoing impact of TRID/RESPA continues to fuel the multifamily asset class as more people need to rent.
The Phoenix MSA is undergoing a substantial change from both a business, economic and demographic housing perspective. Phoenix has started its transformation from a construction centric metropolis to one in which various types of businesses can and will thrive. This is not to say the construction industry is on the way out; rather, it’s maturing much like the rest of Phoenix metro. Despite the many economic challenges which lay ahead, Phoenix is in a good position to capitalize on opportunities as they arise.
John Kobierowski is Senior Managing Partner at ABI Multifamily with over 25 years in multifamily, commercial real estate. ABI Multifamily is Arizona’s largest locally-operated, dedicated multifamily brokerage and advisory firm. John can be contacted at 602-714-1384.
Residential Leasing Seminar
FRIDAY, APRIL 29, 2016 – 9:00 AM TO 12:30 PM
A panel of professionals in this market including two prominent attorneys and property management will provide you with valuable information covering the following topics and more:
- Current Market Conditions and Opportunities
- Resolving Tenant-Landord Conflicts
- Latest Legal Lessons of Leasing
- Vacation Rentals
- Upcoming Luxury Apartment Complexes
Credit: 3 hrs. Legal Issues