Commercial Real Estate Trends in Phoenix, AZ: High Demand for Luxury Apartments

Phoenix is one of the most dynamically growing cities in the country. After a delayed recovery from the recession of the last decade, it rejuvenated like its mythological namesake and is growing at an impressive rate.

The city is the fifth-largest in the country and home to four Fortune 500 companies—electronics supplier Avnet, mining company Freeport-McMoRan, retailer PetSmart, and waste hauler Republic Services. Honeywell, Intel (which is investing $7 billion in its facility in suburban Chandler),^[1] JPMorgan Chase, and American Express are a few other powerhouses with a strong presence here.

With Phoenix undergoing massive expansion, the time is right for investment here, as the multifamily real estate and development markets look strong for years to come.

Job and Population Growth Spark Phoenix Multifamily Housing Demand

Phoenix offers a combination of economic prosperity and warm weather that is drawing a wide range of new residents and employers. The City of Phoenix estimates that it will gain 352,500 residents between 2015 and 2030.^[2] The city looks set to accommodate the new population, as it is rapidly adding jobs across the economic spectrum, from finance and technology to package handling.

In addition to job seekers, retirees represent a significant portion of the population growth. Phoenix and four cities in its metropolitan area—Mesa, Chandler, Peoria, and Gilbert—were among the top 10 cities people over 60 were moving to in 2017, according to the U.S. Census Bureau.^[3]

Only five multifamily complexes were built from 2009 to 2014, but in mid-2017, 61 multifamily projects, totaling 15,406 units, were under construction in the Phoenix metropolitan area, with 68 more projects in the development pipeline.^[4] A report issued by the Arizona Multihousing Association and the National Apartment Association estimated that the city will need 150,302 new apartments by 2030 to meet demand.^[5]

Development thus far has kept pace with that goal, but it may start lagging behind the market. “I would be very surprised if this level of new construction is able to be sustained in the next few years,” said Pete O’Neil, research director at Colliers International’s Phoenix office. If his concerns are on target, it will certainly drive rent increases. His office estimates that 10,500 apartments will come on the market in metropolitan Phoenix in 2017.^[6]

Of course, there are factors working in developers’ favor. The price of land is relatively low in Phoenix and the surrounding area, and the City of Phoenix is providing incentives for construction, such as streamlined permitting.^[7]

As a result, development is surging in downtown Phoenix and the outer metropolitan area. The city proper is rapidly increasing density, and the suburbs are also attractive for new residents. In a 2017 WalletHub listing of the best cities in which to rent Phoenix and surrounding towns occupied eight of the top 12 spots.^[8]

Strong Luxury Apartment Market in Phoenix

The multifamily real estate investment market is quite strong, with capitalization rates generally in the range of 5 to 6%, depending on the age of the property.

There is a strong luxury market driven by young professionals coming to the area to work and well-off retirees who just banked the proceeds from the sale of their houses. Average rent in the city is expected to surpass $1,000 by the end of 2017. Rents in luxury buildings long ago passed that milestone and average $1,450. That segment also shows the fastest increase, rising 8.7% in Q2 2017. This compares to a 6.3% year-on-year average increase overall, and a 6 to 7% increase in Classes B and C in Q2.^[9] 

New construction in and around Phoenix strongly favors luxury apartments. Rents in new constructions are 40 to 50% higher than the local average.^[10]

Expert Real Estate Investment Management in Phoenix

Phoenix offers abundant opportunities for investment in multifamily luxury housing. The market has returned to health and looks ready to thrive for years to come. Amenities are becoming increasingly prominent in luxury buildings. Community features such as saltwater pools and resident lounges are more common in new construction and as part of value-add repositioning.

As experts in multifamily investing in Phoenix, CWS Capital Partners can work with you throughout the investment process, including through acquisitions, development, repositioning, and 1031 exchanges.

Visit our affiliated CWS Apartment Homes website to learn more about our Phoenix Properties, or contact us today to learn more about investing in Phoenix multifamily real estate.

 

The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.