The multifamily sector in Phoenix has been making headlines lately. The fifth-largest city in the U.S. had the nation’s fastest-rising rents in November, according to data from Yardi Matrix, a California-based provider of commercial real estate market information.
New apartments in downtown Phoenix, Arizona, on a sunny day.
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“Job growth and strong in-migration continue to fuel the desert Southwest,” says this source. And Phoenix is a prime example. Through the third quarter of 2019, the metro added 54,300 jobs year-over-year, Cushman & Wakefield reports. And Arizona as a whole continues to see net population gains as people move from other states, according to the latest data from the U.S. Census Bureau.
Record-Breaking Rents
Throughout the past year, Phoenix rents have consistently been among the fastest-growing in the country. As of September, they were up 6.1% year-over-year, putting Pheonix in the No. 2 spot among major U.S. metros, according to Multi-Housing News. (Las Vegas was in first place.) At the time, this source described Phoenix as “still affordable, with its $1,174 average rent heavily trailing the $1,471 national rate.”
In October, the year-over-year data for Phoenix showed a 7.9% “surge” in rents that took the average above $1,200, according to Multi-Housing News. Again the metro ranked second (behind Pensacola, Florida, this time).
In November, national rates fell slightly, but Phoenix saw year-over-year rent growth of 7.5% and reached the top spot (followed by Las Vegas at 6%), according to Yardi Matrix.
In its third quarter 2019 report on the Phoenix market, Cushman & Wakefield cites an average asking rate of $1,171—up 8.7% from $1,078 in the third quarter of 2018. Phoenix has now had positive rent growth for seven years, according to this source.
Too Hot?
“Rental rates, net absorption and construction starts and deliveries are expected to remain high as the Metro Phoenix market continues to experience robust population growth,” Cushman & Wakefield states in its third-quarter report. But in December, the AP warned that “Phoenix rents are outpacing salaries.”
Citing the National Low Income Housing Coalition, this source reports that the average wage employee in Arizona earns about $17 an hour. (The state’s minimum wage is $11.) But in Phoenix, a worker “must earn nearly $20 an hour to afford an average two-bedroom apartment.”
Multi-Housing News also notes that “soaring” rents in the state’s capital are “putting more pressure on low-income residents.”
So far this year, only 2,000 affordable units—those that cost less than 30% of a renter’s income—have been built in Arizona, according to the AP. The state estimates that it needs about 165,000 affordable units.
In a small step toward that goal, the City of Phoenix Housing Department now has a 78-unit affordable housing project underway in the Sky Harbor submarket, Multi-Housing News reports. The five-building, energy-efficient Monroe Gardens Apartments, which is being co-developed by Gorman & Company, should complete in late 2020.
Active Construction
Construction of market-rate units continues at a healthy pace. Through the first three quarters of 2019, the metro Phoenix market saw 9,697 such units complete in 44 projects, reports Cushman & Wakefield. This source cites over 15,000 units under construction and an additional 22,000 units in planning stages. Multi-Housing News describes demand as still “incredibly strong.”
Almost two-thirds of the projects currently underway are expected to deliver during 2020, reports this source. That includes the 504-unit, 12-building Sky at Chandler Airpark from developer VIVO Partners. At build-out, this community will be the second largest in the Chandler/Gilbert submarket.
Current construction also includes Culdesac Tempe, “the country’s first car-free community,” as reported by Forbes. California-based developer Culdesac’s $140 million, 16-acre pedestrian neighborhood in Tempe, scheduled to deliver in fall 2020, will include 636 apartments.
Robust Sales Activity
The Phoenix metro has seen some major multifamily sales transactions in the past few months. During the third quarter, 154 properties changed hands for a total of $5.7 billion, according to Cushman & Wakefield.
That total includes the September sale of the 512-unit Biscayne Bay apartment community in Chandler for $110.3 million ($215,332 per unit). MG Properties Group purchased the 11-building property, built in 2000, from Everest Holdings, Multi-Housing News reported. “The Chandler submarket leads the Phoenix metro area in multifamily absorption,” according to this source.
The month of December brought several notable sales:
The 412-unit Desert View Apartments in North Scottsdale was acquired for $96 million (about $233,000 per unit) by Greystar Real Estate Partners, the largest apartment operator in the U.S., Multi-Housing News reported at the time. The 44-building property, built in 1996 on an 18.5-acre site, is more than 97% occupied. Greystar has rebranded it Avana Desert View. This latest acquisition expands Greystar’s Phoenix area multifamily portfolio to seven communities.
The 326-unit Liv Goodyear apartments in Goodyear sold for $75.5 million ($231,595 per unit). The buyer was a Canadian private investor, according to AZ Big Media. Liv Goodyear sits on more than 16 acres and was completed earlier in 2019. The Phoenix Business Journal describes this transaction as “an indication the West Valley is ripe for real estate deals.”
The new, 80-unit, five-story Union @ Roosevelt multifamily property in the Roosevelt Row neighborhood of downtown Phoenix was acquired by a joint venture between Origin Investments and Randolph Street Realty Capital, Multi-Housing News reports. The original developer of the property, Metrowest Development, was the seller. The new owners plan to “make use of an adjacent vacant land parcel and leverage the apartment community’s location in a downtown opportunity zone” to add 105 more units, according to this source. The second phase of the Union @ Roosevelt is scheduled to begin construction in second quarter 2020.
The Roosevelt Row submarket is described by Multi-Housing News as “one of the most up-and-coming areas in metropolitan Phoenix,” not least because it’s the future home of the TGen Bioscience Campus, a planned 30-acre research and education center expected to deliver in 2025.