Research & Forecast Report
Phoenix MSA Multifamily Review And So It Goes Q3 2019
Employment Greater Phoenix continues to remain in the Top 5 metros for job creation in the country, albeit with moderating growth. During the 12-month period ending in August, preliminary estimates show that employers added 57,800 net new jobs, an increase of 2.7 percent but below the 62,500-average increase over the first half of 2019. According to the BLS (Bureau of Labor Statistics), over-the-year nonfarm employment rose in 32 of the 51 metropolitan areas with a 2010 Census population of 1 million or more, while employment was essentially unchanged in 19 areas. The largest over-the-year percentage increases in employment in these large metropolitan areas occurred in Orlando-Kissimmee-Sanford, FL (+4.0 percent), Dallas-Fort Worth-Arlington, TX, and Seattle-Tacoma-Bellevue, WA (+3.1 percent each), and Houston-The Woodlands-Sugar Land, TX, and Phoenix-Mesa-Scottsdale, AZ (+2.7 percent each).
Accelerating success.
PHOENIX MSA EMPLOYMENT
Rent/Occupancy
PHOENIX MSA AVERAGE RENT | OCCUPANCY (2000 - YTD)
Average Rent for Greater Phoenix was up 6.5 percent, YoY, to $1,169. Occupancy for the region was 95.2% (down 20 bps q-o-q and same YoY) and marks the 31st consecutive quarter occupancy has been above the 20-Year Average (91.6 percent). Greater Phoenix has continued to see sustained rent growth averaging 6 percent per year since 2014. Asking rents in Class A buildings as of Q3 hit a new high with an average of $1,494 per month which is a little over $300 higher than the market average.
Construction Planned Development increased in both over-the-quarter (5 percent) and over-theyear (20 percent) readings. Actual projects under construction reversed trend and increased 8 percent, over-the-quarter, to its current 15,351 unit amount. Given the ongoing trade war and tight labor conditions has continued to act as a market headwind, in the near-term, and supports ongoing rent growth referenced above. Despite elevated construction deliveries, occupancy is still 360 bps above the 20-Year Average. Pre-lease absorption rates continue to remain in line with 3-Year averages at 15 units per property/month. Based on the average number of units under construction, per property, which is 260, and assuming 90 percent occupancy for stabilization; current delivery-to-stabilization period remains at 15.6 months, below the 18-to-24 month rubric used by developers. 2
Colliers International
PHOENIX MSA MULTIFAMILY CONSTRUCTION (50+)
Investment Sales (100+) PHOENIX MSA (100+) AVG. PRICE PER UNIT (PPU) BY VINTAGE
We have seen CAP rates tighten back up and financing is still very attractive, the 10-year treasury sits at 1.56% compared to 3.21% this time last year. We are seeing a record year in terms of pricing and volume, as our y/y comparisons show below: Q3-2019 YTD vs. Q3-2018 YTD (2018)
Q3-2019 vs. Q2-2019 vs. Q1-2019
Transactions: 124 Sales vs. 94 Sales (2018)
Transactions: 35 Sales (Q3) vs 38 Sales (Q2) vs 51 Sales (Q1)
Total Sales Volume:
Total Sales Volume:
$5,338,479,583 vs. $3,643,826,419 (2018)
$1,748,902,333 (Q3) vs $1,699,512,250 (Q2) vs $1,890,065,000 (Q1)
Average Price/Unit: $156,693 vs. $140,269 (2018)
Average Price/Unit: $165,482 (Q3) vs $159,986 (Q2) vs $148,208 (Q1)
Avg. Price/SF: $187.28 vs. $169.58 (2018)
Average Price/SF: $197.01 (Q3) vs $187.29 (Q2) vs $179.60 PSF (Q1)
Avg. Vintage: 1991 vs. 1990 (2018)
Average Vintage: 1993 (Q3) vs 1993 (Q2) vs 1990 (Q1)
Permits MF & SFR
12-Month Trailing Permits Combined (SF/MF)
12-Month Trailing Permits Single Family
12-Month Trailing Permits Multifamily (5+)
Current Aug-19 +5.8% Y-o-Y
Current Aug-19 +8.5% Y-o-Y
Current Aug-19 -8.8% Y-o-Y
22,915
7,831
24,104
PHOENIX MSA TRAILING 12-MONTH & HISTORIC PERMIT TOTALS
MF Permits
SF Permits
Colliers International
2017
2018
2015
2016
2013
2014
2011
2012
2010
2009
2007
2008
2005
2006
2003
2004
2001
0
2002
to outpace permit growth by 50 percent.
1999
10,000
issued. At 1.8, job growth is continuing
2000
20,000
for every 1.2 jobs added, there’s 1 permit
1997
30,000
with demand. Equilibrium = 1.2, meaning
1998
looks at how well supply is keeping up
1995
40,000
1996
(E/P)
Ratio
1993
50,000
Employment-to-Permit
1994
(as of August) E/P Ratio is 1.8. The
1991
60,000
Current
1992
70,000
their peak 2004/05 levels.
1990
80,000
Permits continue to be well below
3
Multifamily Housing Demand Chart
More than 6,700 units came online during thru Q3 2019. Given the current construction rate, 2019 should prove to be the highest delivery amount since 2009’s 9,315-units. There are approximately 15,300 units currently under
PHOENIX MSA MULTIFAMILY TOTAL MF HOUSING DEMAND VS. DELIVERIES P h o e n i x M S A M u l t i fa m i l y 2010 - 2020 Total MF Housing Demand v Deliveries UNIT DEMAND (Estimated)
construction throughout Greater Phoenix. This marked the 22nd consecutive quarter where the number of units under construction was above 10,000. Despite sustained new construction, Phoenix’s apartment unit deficit is still expected to hit +/- 32,000 units by 2020/21. Why?
UNIT DELIVERIES (Estimated)
120000
110,272 UNITS DEMAND
100000
#1 Occupancy rates for the Phoenix area as of Q3 2019 was 95.2%, and marks the 31st consecutive quarter occupancy has been above the 20-year average.
80000
77,367 UNITS DELIVERIES
60000
#2 Population Growth: Maricopa County was fastest growing county in the nation for 3rd year in-a-row
40000
(2016/17/18).
20000
#3 Job Growth: as of Q3 2019 was 2.7% which places Greater Phoenix in the Top 5 among the top-36 major
0 2010
2020
employment markets in the country for new job growth.
EXPECTED UNIT DEFICIT = 32,905 UNITS
Outlook The outlook for the Greater Phoenix continues to remain bright in both the mid-to-near-term as local businesses continue to expand and new companies continue to bring operations to the Valley. Since July 2019, a little over 14,000 new jobs have been announced with some 40 percent concentrated in the Scottsdale/North Tempe submarket areas. While the rate of job growth has slowed, employers are continuing to add employees which is supporting a strong economy. Since January, the Federal Reserve and, for that matter, central banks across the developed world turned decidedly more dovish. From reducing interest rates to the resumption of QE (Quantitative Easing), central banks have, once again, fully reinserted themselves back into market operations. When combined with the on-going trade war, rising global tensions and mixed signal indicators all point to a weakening economic outlook, but as of now, no recession. With continued market uncertainty, all roads point to continued reductions in interest rates at the Federal Reserve level and deeper negative abroad, particularly in Europe. The net result, real estate markets remained robust for most of the third quarter and the drag on real estate prices many were expecting, as a result of rising rates which has reversed, has not materialized. With a more dovish Fed, deepening negative rates in Europe, demand for commercial real estate assets should continue to increase, especially as yields plummet and as investor need for cash flowing vehicles, due in large part to changing demographics, continues to rise.
colliers.com/arizona THOMAS BROPHY Research Director | Arizona +1 602 222 5066 Thomas.Brophy@colliers.com
COLLIERS INTERNATIONAL | ARIZONA 2390 E Camelback Rd. Ste. 100 Phoenix, AZ 85016 +1 602 222 5000
Copyright © 2019 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers Copyright © 2019 Colliers International. are encouraged to consult their professional advisors prior to The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has on any of the material contained in this report. acting been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.