© 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.”
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.
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.