Greater Phoenix continues its strong multifamily real estate performance, with the first half of 2017 posting increasing rents, strong construction and strengthening investment activity. The city experienced a traditional, seasonal vacancy uptick during the second quarter, but the remainder of the year is forecast to be strong. These findings are part of the Multifamily Market Report from Colliers International in Greater Phoenix, which can be read in its entirety by clicking Here
Vacancy in the Greater Phoenix multifamily market rose 30 basis points during the second quarter, which is common for the city. The vacancy rate rose to 5.9 percent, which is identical to the rate one year ago. Five submarkets in the city posted vacancy rates below five percent. Some areas are seeing rates rise in response to the addition of new developments. The Central Phoenix/Encanto area reached nine percent during second quarter, as inventory increased more than 15 percent in the past year. Approximately 1,200 new units have been delivered there in the past 12 months.
Rental rates are rising at an accelerated pace during 2017, advancing five percent year-to-date. Rates are up 6.3 percent in the past 12 months to an average of $977 per month. The average rental rates are expected to top $1,000 per month by the end of this year. Class A properties posted the largest rent increases in the past three months, but all property classes saw increases during second quarter. Asking rents in Class A buildings averaged $1,450 per month, but annual increases in Class B and Class C properties are averaging six to seven percent.
Construction of new multifamily communities has been very active with more than 1,800 new units coming online during second quarter. This is a rise of 23 percent over the first quarter total. Greater Phoenix has increased its multifamily inventory 2.2 percent with the addition of more than 5,800 new units during the past 12 months. Construction is expected to gain momentum in the upcoming quarters. The city currently has 12,200 units under construction and an additional 17,000 planned.
Investment activity strengthened during the second quarter of 2017 within the multifamily sector. More properties are trading at higher prices and cap rates compressed to the mid-five percent level. While sales of apartment properties rose 13 percent during second quarter compared to first, the level of activity is still down approximately eight percent from the first half of 2016. Second quarter sales averaged (The median price during the second quarter reached) $116,000 per unit and the year-to-date average in Greater Phoenix is $102,147 per unit. Cap rates compressed as prices pushed higher, with the average second quarter sale posting a 5.5 percent cap rate. The year-to-date average cap rate is approximately 5.7 percent.
Colliers International In Greater Phoenix is forecasting a strong second half of 2017 for the multifamily market. Vacancies have fluctuated a bit as new developments are completed. Tight vacancy conditions are setting the stage for rapid rent growth, which are poised to post the strongest annual gains in the past 10 years. Sales of multifamily communities have dropped off slightly in 2017 compared to last year, but sales volume should remain robust. The completion of new projects will add inventory to both the rental market and investment market going forward.