Healthy conditions abound with lower vacancies and rising rents
Phoenix, November 16, 2017 – The Greater Phoenix multifamily market continues expanding to unprecedented levels with strong tenant demand, lower vacancy and rising rents as new communities are brought online. Conditions of the market are outlined in the third quarter 2017 multifamily report from Colliers International in Greater Phoenix.
“During third quarter, we saw deliveries of new developments pick up, yet this new inventory was balanced with tightening vacancies,” says Pete O’Neil, research director with Colliers in Greater Phoenix. “Recent quarters of unprecedented strength in our multifamily market have attracted investors to Phoenix in search of multifamily assets.”
The multifamily vacancy rate ticked up slightly in second quarter, which is typical during the summer months. During third quarter vacancy dipped 20 basis points to 5.7 percent. This is unchanged from a year ago. The vacancy in multifamily has been at or below 6 percent for the past two years.
Rental rates are rising at a healthy pace. Asking rates rose one percent during third quarter, hitting $987 per month. This marks a 6.4 percent increase from one year ago.
Development of apartments has been occurring at record levels for the past several years. Fortunately, the pace of net absorption has closely tracked the rate of construction. Strong demand continues to spur new development. Currently, more than 12,000 units are under construction, up nearly 60 percent compared to a year ago. An additional 16,000 units are planned in Greater Phoenix. Construction in the past few years has been focused in just a few key areas. Vacancy tightening and rent escalations have now reached a level to justify development in a large collection of submarkets throughout the Valley.
Investment conditions in the Phoenix multifamily market strengthened during third quarter. Sales velocity rose, along with the median price of an apartment unit. Cap rates compressed to an average 5.4 percent in third quarter. During the last three months, the average price per unit sold was $125,800.
Colliers anticipates a strong completion of 2017 for the multifamily market and forecasts a favorable 2018. Vacancy is expected to remain low, but not decrease much below current levels. Strong tenant demand due to job growth and in-migration will fuel absorption of new developments. The investment market traditionally is strong in fourth quarter. While some investors are wary of future tax policy changes, the fundamentals of the Phoenix multifamily market are strong and should remain so for at least the next 18-24 months.
About Colliers International Group
Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading global real estate services company with 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting.
Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that helps clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 12 consecutive years, more than any other real estate services firm. Colliers also has been ranked the top property manager in the world by Commercial Property Executive for two years in a row.
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Colliers International in Greater Phoenix has served clients locally and globally for more than 35 years.