© Copyright 2017 by MP Media, LLC

the return of building


Climbing numbers of building permits signal that the 
oversupply created during the run-up — which peaked 
at 63,500 permits in 2005 — has been consumed. Vogel 
estimated that 2016 will finish with 18,200 permits:  better, 
but “nowhere near normal.” Going forward there could be 
as many as 4-6,000 more issued than in 2016. 



density single-family homes are a trend worth watching, 
Vogel said.  “We’re seeing more of these because of the 
quality of the product, and the organization of the open 


 Infill development represents 10 percent of the 

market, but Vogel doesn’t expect it to grow. “The builders 
who have tried this have done well,” he said, “but it’s really 
hard to find opportunities for the ones that want to reload.”

big opportunities

The multifamily sector is poised to take off, with rents 
accelerating—especially in Class B- and C developments. 
Residents faced with those rising rents may consider buying. 


 Demand for apartments is coming from people who lost 

their homes during the downturn as well as millennials 
and retirees, all looking for an urban lifestyle. With new 
construction clustered in the Valley core, opportunity for 
development on the fringes is strong. 


 The rest of the 

commercial sector, except for retail, is thriving. The office 
sector includes Class C and obsolete space that could be 
replaced, and with the vacancy at 17.8 percent. Meantime, 
Class A office rents could climb to $36 to $40 per square 
foot. Hotel occupancy is also up. 


 “We are now seeing the 

first two new resort projects in over 10 years,” Vogel said.

the lay of the land

2005 logged $10 billion in land closings; in 2008, 
activity had withered to $400 million. Land sales came 
in at $1.9 billion over the past 12 months, and Vogel 
expects land sales of $2 to $3 billion dollars a year going 


 Builders have been scooping up any finished 

lots they can find after emptying the cupboard in the 
past 12 months. They are now turning to platted and 
engineered, and partially finished lots. Vogel said one of 

the best supply areas for these is in the 303 corridor and  
finished lots in Maricopa. 


 Vogel estimated that 185,000 

acres will be needed in the next 13-15 years for all 
development, an area equivalent to the East Valley. 


Industry leaders are excited by the energy in the current 
market but are aware of the challenges. John Burns, CEO 
of John Burns Real Estate Consulting, reported 76 percent 
of builders surveyed say that labor is holding construction 


 Mortgage rates and financing are also causing 

headaches. On Dec. 14, the Federal Reserve raised its 
benchmark interest rate to a range of 0.5 percent to 0.75 
percent. Heuser warned that climbing rates could shock 
buyers, especially millennials. 


 But panelist Michael Orr, 

author of The Cromford Report, said interest rates are not 
a deterrent, if applying for a loan was easier. Because the 
economy is expanding, a rise in interest rates may not be 
the set back some fear. But with equity investors leery of 
the industry, construction financing is tight. 

looking ahead

With finished lots being consumed by builders, increased 
permit activity and a solid foundation of Phoenix 
macroeconomics, builder inventory will grow tight. Land 
development, land sales and housing demand should be 
strong moving forward, positioning Phoenix to be of the 
country’s top housing markets in 2017. 

Sector Update: