The Tucson multifamily real estate market completed 2016 stronger than a year prior and shows promise to build further momentum during, according to the 4th Quarter report from Colliers International in Greater Phoenix.
Vacancy rates in Tucson rose 60 basis points during the fourth quarter, but finished the year at 6.9 percent, a full 90 basis points lower than year-end 2015. This marks the fourth straight year that metro-wide vacancy has dropped. New units are being leased at a healthy pace.
Construction of new units was steady for most of 2016, but is poised to slow down in the months ahead. Developers have delivered an average of 950 units to the Tucson market each year since 2012. Permitting slowed in the second half of 2016 with only 110 multifamily permits issued. This is down from 275 permits in the first six months of last year. Total multifamily permit issuance in 2016 dropped more than 60 percent from the 2015 total.
Rental rates in Metro Tucson rose during the final months of the year, which completes six quarters of increasing rents. Asking rents increased by 4.7 percent in 2016, ending the year at $688 per month.
Sales of multifamily properties slowed slightly at the end of the year, but 2016 sales outpaced 2015. The median price spiked nearly 30 percent during 2016 and reached more $41,500 per unit. Cap rates compressed to the mid-six percent range with fundamentals indicating a strong investment climate for 2017.
Construction is forecast to slow considerably in this year and new renter demand will expand with both population and employment growth. This increasing demand will fill existing complexes. Further tightening the vacancy rates and pressuring gains in rental rates. Purchases of multifamily properties dipped during the fourth quarter of last year, but have already picked up in the first few weeks of 2017.