Research & Forecast Report
Tucson MSA Year End 2021 Multifamily Review Opaquely Crystal
After four years of interest rates being firmly fixed at 0%, in 2012, the Fed
Occupancy rates hit another record high increasing 100 bps over-the-year to
introduced the “Dot Plot” system into their arsenal of policy tools. The dot plot
97.7% and besting the previous all-time occupancy high of 97.2% set in Q3
system allows the Fed’s 18 members to communicate to the market where,
2021.
they believe, interest rates will be now to several years into the future. As of December 15, 2021, 2 of 18 Fed members believed the Fed Funds rate would
There are 674 units currently under construction throughout Greater Tucson
be above 1.00% by YE 2022 with all 18 assuming rates will be above 1.00%,
which marked the first time since Q2 2019 that the number of units under
but not higher than 2.50%, by YE 2023. For the Longer-Term outlook, only 2
construction was below 1,000.
of 18 believe interest rates will hit 3.00% by sometime, anytime, after 2024. (Continued)
Summary According to the BLS, Tucson MSA has gained back 92% of March/April 2020’s job losses. The Tucson MSA continues to be a nation leader in year-over-year rent growth rising 23.1% to $1,094. This growth rate is substantially higher than the National average which increased 14.6%, but still $546 below the National average rent of $1,640.
Investment sales volume significantly increased to $1.196B, with an average PPU (Price Per Unit) increasing 44% to $155,996.
Employment Overall, from May 2020 to December 2021, Tucson was #9 in the Sun
Nonfarm Losses Gains Employment Mar 20 - Apr 20 May 20 -Dec 21 US Nonfarm (millions) -22,362 18,790
% Recouped 76%
Arizona
Belt with 92% of total jobs recouped and just ahead of both Houston and
Phoenix
-242,800
300,600
124%
Albuquerque’s 88%. Tucson registered a 2,700 increase, or +0.7% m/m,
Tucson
-44,300
40,600
92% 125%
Florida
year-over-year Tucson witnessed a 4.0% increase.
Jacksonville
-82,700
103,200
Orlando
-206,700
138,000
67%
Tampa
-170,900
201,000
118%
Miami
-449,000
386,900
86%
396,300
104%
Total nonfarm payroll jobs as of December 2021 is 393,800, or 1.2%, or 4,700 jobs off peak employment of 398,500 in December 2019. If the
Georgia
current recovery holds, employment normalization should be achieved
Atlanta
by H1 2022.
-381,500 Texas
Houston
-361,400
316,700
88%
DFW
-425,400
538,500
127%
San Antonio
-131,100
146,100
111%
Austin
-137,000
186,200
136%
98,800
151%
Utah Salt Lake City
National Rent Payments
-65,500
RENT PAYMENT TRACKER (% COLLECTED) National
Tucson (est)
According to the National Multifamily Housing Council (NMHC)’s Rent Payment Tracker, market-rate apartment rent collections saw its lowest reading for the month ending December, decreasing 180 bps over-theyear to 92.0%. For Tucson, estimated rent collections have generally re-
95.9%
93.6%
mained above 94%+ since March 2020 to its current 94.5%.
Oct’20
Rent/Occupancy Average rent for Greater Tucson was up a staggering 23.1% yearover year to $1,094 and up over-the-quarter by 4.1%. Occupancy for the region was 97.7% or 100 bps higher year-over-year. This marks the 10th consecutive quarter occupancy has been above the 5-Year Moving Average of 95.4%. Since 2018, over-the-quarter rent growth has averaged 2.6% for Tucson as a whole. Class A has averaged 2.6%, Class B at 2.4%, and Class C at 2.1%. Asking rents in Class A buildings increased 18.9% year-over-year to an average of $1,367, which is $273 higher than the market average. Class B and C properties witnessed 22.7% (to $1,047) and 13.8% (to $851) year-over-year rent increases respectively with neither contracting over-thequarter.
95.4%
95.0%
94.8%
Nov’20
93.8% 93.8%
Dec’20
93.0%
Oct’21
94.5% 93.1%
Nov’21
94.5% 92.0%
Dec’21
AVERAGE RENT | OCCUPANCY (Q1 2017 - YTD)
Pre-Lease Absorption
Construction Planned Development reached a current cycle high increasing 52% year-
Pre-lease absorption rates ended YE 2021 with an average of 10 units
over-year to 2,269 units. Actual projects under construction decreased
per property per month. Based on the average number of units under
(49%) in over-the-year readings to its current 674-units.
construction per property, which is 169, and assuming 90% occupancy for stabilization; current delivery-to-stabilization period is hovering around
Occupancy remains significantly elevated at 97.7% which is 230 bps above
15-months which is below the 18-to-24-month stabilization rubric used
the 5-Year Average and the highest reading ever recorded. Assuming all
by developers. Since 2020, months-to-stabilization has averaged 9
1,000 units that are projected to be completed by end of 2021 were de-
months which suggests that demand will continue to outpace supply in
livered vacant, occupancy would still be above 95%.
the near-to-medium terms.
MULTIFAMILY CONSTRUCTION (50+)
AVG. PRE-LEASE ABSORPTION RATE/PROPERTY (Q1 2020 TO YTD)
Investment Sales (100+) (100+) AVG. PRICE PER UNIT (PPU) BY VINTAGE As of 12/30/21 the 10-year treasury sat at 1.51% compared to 0.92% as of 12/30/20 or 59 bps increase year-over-year. YE 2021 Summary of Multifamily Sales (100+ units)
Top 3 Transactions (Market Rate, Non-Student/Senior, Q3 Only)
Transactions: 34 sales (up 143% y/y)
1. Mariposa Portfolio: $106,254,110 | $140,921 per unit | Closed 12/29/21 | Yr Blt Various
Total Sales Volume: $1,196,335,995 (up 67% y/y)
2. Desert Shadows: $69,300,000 | $205,030 per unit | Closed 10/04/21 | Yr Blt 1985
Average Price/Unit: $155,996 (up 44% y/y)
3. Yardz on Kolb: $65,500,000 | $159,756 per unit | Closed 12/31/21 | Yr Blt 1972 Colliers International
3
Permits MF & SFR
ANNUAL RESIDENTIAL PERMITS (2000 TO Q4 2021)
Combined Trailing 12-month permit levels, which includes both single family and multifamily permits, increased 5% to 1,381. Despite generally increasing permit levels, total permits for 2021 were 6,039 or 47% below the previous market peak of 11,323 units in 2005. Projected 2022 permits counts are expected to be approximately 6,500.
SF Permits
MF Permits
12,000 10,000 8,000 6,000 4,000 2,000
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Outlook – Opaquely Crystal Total US Nonfarm payrolls increased by 199,000 in December, compared with
As John Mauldin, from Mauldin Economics, states, “one consequence of inflation
the Dow Jones estimate of 422,000. The unemployment rate dropped to 3.9%,
is that it pushes “real” interest rates lower… If the Fed follows recent practice
better than the expected 4.1%. Since May, U.S. nonfarm employment has re-
and raises rates a quarter point at each meeting starting in mid-2022, it might
couped 84% (18.790M) of the job losses stemming from Covid. According to the
add up to a 1.25% hike by the end of next year….[and] will still leave negative
BLS, Tucson MSA has gained back 92% of March/April 2020’s job losses. Given
real interest rates of -3%...But would markets tolerate anything tougher? Proba-
the current recovery rate, Tucson is expected to fully recover sometime in H1
bly not…Most obviously, higher rates would raise borrowing costs for the biggest
2022.
borrower of all, the US Treasury. The debt has reached a size at which even tiny rate increases add big bucks to the government’s bill.”
In August 2020, the Fed moved to essentially re-write its mandate, i.e. letting inflation run higher than 2% which, at the time, untethered it from all historical
Given that as a backdrop, it would seem continued Government and Federal Re-
regimes. Essentially, the Powell Fed bet they could ignite, and control, inflation
serve interdictions in the market will not only continue, but accelerate, despite
in the meaningful, but manageable, 4 to 5% range. Less than two years later,
statements to the contrary. If that is the case, then would seem to me that we are
Powell, coupled with the Pandemic and all its deleterious effects, certainly man-
much closer to negative interest rates, now, that at any point in our history. Since
aged to jumpstart inflation with the average, annualized, monthly reading of
the 1950s, the Fed has had to adjust rates an average of 500bps lower during a
6% throughout 2021. Inflation, now, is so high that we are running close to the
recession and, according to the current ordering of dot plots, absolutely no one
hyper-inflation days of the late 1970s/early 1980s.
on the Fed sees short term rates rising above 3.00%.
Thomas Brophy Research Director | Arizona +1 602 222 5057 Thomas.Brophy@colliers.com
Colliers international | Arizona 2390 E Camelback Rd. Ste. 100 Phoenix, AZ 85016 +1 602 222 5000
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Copyright © 2019 Colliers International. colliers.com/arizona 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