The first quarter of 2020 zooming byand I am going to share my research and thoughts on the market for the Phoenix area and in particular MultiFamily.
First and foremost one of the questions that I am continually being asked is how long until we see a correction in the Phoenix Market. Let me be clear-I do not have a crystal ball and will not set specific times or dates.
Here is what is happening now. There are over 250 major companies relocating to the Phoenix Market and this means jobs and building growth. One of the reasons that we see this is really two fold. One, California is almost impossible to build in and the laws that DISCOURAGE growth are rapant. My phone is ringing constantly with California Investors. I am meeting with several Californians that have given up and moved here. Many are liquidating their assets on the coast and moving their investments here. The second reason is that our State has a VERY friendly legislature for growth and are incentivized to make this happen. What is really interesting is that I am receiving quite a bit of interest from the East Coast as well.
Remember that our cost of living is low as well.
So the next question is what about jobs, tenants and places to live?
In reference to jobs, our unemployment rate is below that National average and our workforce is robust. Tenants are interesting right for two reasons. The first is that the amount of rents are keeping up with the wages and rents are on the increase there is no doubt. We had a multi unit property that the tenants needed the rents raised. The Property Manager raised the rents $200 across the board and not one tenant left! One of my clients in Tucson wanted to rent a small apartment here so he could manage the rehab on one of his properties. He could not find an apartment or at least one that he felt was affordable for his needs. The second part of the Tenant situation is that the younger tenants (millennials) do not want home ownership, they do not seem to want the responsibility of maintaining their own property.
Places to live are really interesting and probably the main reason that we see NO vacancies to speak of.
About 10 years ago, Elliot Pollock who is probably the foremost economist on the PHoenix market projected that in 2020 we would need 525,000 more dwellings and that 35% of this would be new multifamily. I went to a conference two weeks ago on the economy that he was one of the featured speakers. Not only have we not met these numbers but now he believes that we need more units and that he projects that our growth will remain strong for at least another 4 years.
Here is a link for some breaking news that happened yesterday check it out Historically low inventory continues driving home prices higher
I want to quote and give you directly from the horse’s mouth Elliott Pollack’s last Monday projections. I respect him a great deal and you should go to his website and sign up for his weekly updates. See below.
Also, remember that I am on the ground and digging deals out. Call me I want to speak with you and help you understand the market and what is going on.
ELLIOTT D. POLLACK & Company
FOR IMMEDIATE RELEASE
January 27, 2020
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
It was a slow week for national economic news. Leading indicators were essentially flat. Monthly existing home sales increased substantially from a year ago in December but were up only modestly for the year (2019 over 2018). And the supply/demand imbalance in the country caused resale prices to increase at four times the overall rate of inflation and more rapidly than wage gains for the December over December measure but were up more modestly for the year as a whole. This is because when interest rates declined during the year it allowed more of the pent up demand for housing to manifest itself. Other than that, it was political. The impeachment trial got underway in the Senate. And according to the Washington Examiner, the death of Mr. Peanut, the Planters Peanut symbol for the last 104 years, overshadowed the first day of impeachment arguments on Twitter. Is the public telling us something?
On the local level, the latest Arizona, Greater Phoenix, and Greater Tucson employment data shows that the state and its major metro areas are continuing to do well economically. Arizona remained the third most rapidly growing state in 2019 and Greater Phoenix was the third most rapidly growing major employment market in the country in 2019. Thus, the state and Greater Phoenix are going into 2020 with a full head of steam. The same can be said for the single family, apartment, office and industrial real estate markets in Greater Phoenix.
- The Index of Leading Indicators fell modestly in December to 111.2. This is a 0.3% drop from November’s 111.5 and a 0.1% increase over December 2018 (see chart below). It is worth noting that leading indicators have modestly declined in four of the last five months. The manufacturing indicators are pointing to continued weakness in the sector. However, financial conditions and consumers’ outlook for the economy remain positive.
- Existing home sales grew by 3.6% in December when compared to November. They were up 10.8% over December 2018. For 2019 as a whole new home sales were flat for the year and single family sales were up a modest 0.5%. This indicates a significant rebound in housing the second half of 2019. The declines in mortgage rates helped free up some of the huge pent up demand for housing. The lower mortgage rates help offset the effect of higher prices on affordability as home prices increased by 7.8% December over December and 4.8% when comparing 2019 to 2018.
- Employment figures for both December and full year 2019 came out this week. The numbers show continued solid growth in the state as a whole, Greater Phoenix, and Greater Tucson.
- For the state as a whole, December employment was up 2.9% from December 2018 or 84,400 jobs. And for the year as a whole, employment in the state was up 2.6%. While this is somewhat slower than the 2.8% growth in 2018 over 2017, it is still strong. And while the rate of growth in employment has modestly slowed in the second half of the year, the state is entering 2020 on solid footing. Arizona remains the third most rapidly growing state (percentage terms) in the U.S. behind Utah and Nevada.
- For the year as a whole, employment was up 74,800 jobs. The sectors with the biggest gains in absolute terms were Educational and Health Services with 19,300 jobs, Construction with 16,000 jobs, Trade, Transportation and Utilities with 10,500 jobs and Professional and Business Services with 10,000 jobs.
- In percentage terms, the employment sector leaders were Construction with 10.1% growth, Manufacturing at 4.4% growth, Educational and Health Services at 4.3% and Natural Resources and Mining at 4.3%.
- Greater Phoenix employment growth was up 3.2% from December 2018 to December 2019. That’s 68,800 jobs or more than 81.5% of all the jobs created in the state over that period of time. When comparing 2019 with 2018, growth was 2.9% or 61,800 jobs. That’s 82.6% of all the jobs in the state. The 2.9% for 2019 compares to 3.3% in 2018 and 3.0% in 2017. The 2019 number is likely to be revised upward when revisions are released in March. The present numbers paint a bright picture for Greater Phoenix. It is now the third most rapidly growing major market in terms of percentage employment in the country. Only Dallas at just under 3.1% and Orlando at just under 3.6% grew more rapidly in 2019.
- Greater Tucson grew by 8,800 jobs or 2.3% on a December over December basis. On a year over year basis, Tucson was up 1.9% or 7,300 jobs. This was the best year for Tucson since 2006.
- According to CBRE, the Greater Phoenix industrial market continues to do well. In the 4th quarter of the year, 2.6 million square feet of industrial space was absorbed while 3.3 million square feet was brought on stream. Thus, vacancy rates increase modestly from 6.1% in the 3rd quarter to 6.3% in the 4th quarter. This is still very low by historical standards. For 2019 as a whole, 10.7 million square feet was absorbed while 9.1 million square feet was delivered. Vacancy rates for the year as a whole declined from 6.5% to 6.3%. Rental rates were up almost 8%.
- According to CBRE, the Greater Phoenix office market also did well in 2019. In the 4th quarter, absorption of office space was 830,401 square feet while change in inventory was 558,731 square feet. Thus, vacancy rates dropped from 14.4% in the 3rd quarter to 14.1% in the 4th quarter. For 2019 as a whole, 3.2 million square feet was absorbed 2.8 million square feet was delivered.
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.