Demand Remains Strong in Greater Phoenix Multifamily Market

The multifamily market continues its dynamic pace with strong renter demand, rising rental rates and steady sales, according to a report released by Colliers International in Greater Phoenix. To read the entire report click HERE.

 

During the first quarter of 2017, vacancy fell 40 basis points to 5.6 percent.  This is welcomed improvement for the beginning of the year, but the rate is 40 basis points higher than a year ago. The lowest vacancy is found in Goodyear/Avondale with just four percent.  The addition of an average 130 units per year since 2015 has not elevated the vacancy in this submarket, where tenant demand is strong.  The South Gilbert/Queen Creek submarket saw a 200 basis point rise in vacancy since a year ago and now has a 6.4 percent vacancy.  This area has annually added an average of 800 units for the past three years.

 

Rental rates rose further in the first quarter, reaching $949 per month.  This is a 5.6 percent increase from one year ago. This marks the 14th consecutive quarter for rental rate increases and the 1.9 percent increase in the first three months of 2017 was the fastest growth in nearly a year.  These gains are being experienced across all property classes.  However, the strongest growth is now being experienced in Class C properties.

 

Construction remains strong and is forecast to gain momentum in the upcoming quarters.  Nearly 1,500 units came online in the first quarter, up from 800 units in the fourth quarter of 2016.  More than 5,700 units were completed in the past 12 months, increasing inventory by 2.2 percent.  Approximately 10,5000 new units are currently under construction in Greater Phoenix, which is up nearly 30 percent from the total at the end of 2016.

 

Investment activity in the multifamily sector slowed in the first quarter of 2017.  Despite the downturn, transactions are still 30 percent higher than they were in the first quarter of last year.  Median prices ticked down and cap rates remained relatively unchanged in the high five-percent range.  The decline in median price is due to a drop-off in the sale of newer complexes.  During first quarter, newer complexes accounted for just seven percent of activity, compared to 13 percent in 2016.

 

The forecast for Phoenix’ multifamily market remains strong for the remainder of 2017.  Healthy population growth and the city’s success in attracting new businesses are spurring the local economy.  Strong renter demand and tightening vacancy is elevating rental rates, which are expected to surge by more than five percent in 2017.  Sales velocity in first quarter set a trend for a healthy remainder of the year.  Increasing interest rates have added a bit of volatility to the transaction process, but has created very little impact on the market.

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