The Greater Phoenix real estate market for Multifamily properties posted a strong 2016, but activity slowed during the final quarter of the year. Colliers International in Greater Phoenix’ fourth quarter report indicates that 2017 will bring more inventory to the market and steady occupancy.
The fourth quarter of 2016 brought a slight increase in multifamily vacancy, bringing the figure to 6.0 percent, up from 5.7 percent a year ago. This was the first year of vacancy increase in Greater Phoenix since 2009. While this was a rise, the current vacancy is 300 basis points below the market’s long-term average and absorption of units remains strong. Vacancy crept higher in the Class A segment, where the supply has been growing at a rapid pace. The Class A properties are posting a 6.8 vacancy as of fourth quarter 2016.
A rise in vacancy was expected during 2016, as the rate had hit a 20-year low earlier in the year. The delivery of new units remains robust and developers in the market have completed more than 18,000 new units since the beginning of 2014. During 2016, more than 5,800 units were completed following the boom year of 2015 hen nearly 7,400 apartments were delivered to the market. Projects totaling approximately 8,200 units are underway and an estimated 7,000 of those will be completed in 2017. Permit applications are down nearly 12 percent in the second half of 2016 compared to the first six months. While that is a slowdown, permitting in 2016 was up more than 50 percent from 2015 levels.
Rents rose in the final three months of 2016, but at a slower pace than in preceding quarters. Asking rents ended the year at $931 per month, which is 6.8 percent higher than year-end 2015. Rates are increasing across all segments of the multifamily market. Class B and Class C properties saw increases at or above 7.0 percent in 2016. The new year indicates that further increases will take hold throughout 2017.
Investment activity during the last quarter showed reaction to the rise in interest rates during the final weeks of 2016. Sales velocity dropped at the close of 2016, but more properties were sold during the 12-month period than in 2015. Prices rose during 2016, but cap rates crept higher in the fourth quarter. The median sales price during fourth quarter was $102,500 per unit.
The Greater Phoenix multifamily market has been strengthening for the past several years, but improvement leveled off during the last six months of 2016. Vacancy is expected to remain well below the market’s long-term average and rents will continue pushing higher. Predictions for the investment market will depend on market fundamentals and response to interest rate increases.