Hot market strengthens further in first quarter
Phoenix, May 8, 2018 – Colliers International reports the Greater Phoenix multifamily market started off the year hotter than ever, as vacancy continued to drop and both rents and sales prices trended higher.
The vacancy dropped 50 basis points during the first three months of 2018, falling to 5.4 percent. This marks the second-lowest vacancy in the past 20 years. While the dip in vacancy was fairly modest in the first quarter, it was widespread across the metropolitan area. Tenant demand is being driven by expansion of population and dynamic job growth in the metro area. During the past 12 months, payrolls have expanded by 3percent with the addition of 61,600 new workers.
Asking rents rose by 2.4 percent in the first quarter of 2018, reaching $1,018 per month. This is 7.3 percent higher than one year ago and the first time asking rents have passed the $1,000 mark. Some of the strongest increases are occurring where newer, expensive units are being developed, such as South Gilbert/Queen Creek, South Scottsdale and North Tempe. If demand for Class A properties continues at this pace, more new developments will be put into the construction pipeline.
Vacancy remains lower than a year ago even as nearly 9,000 new units were delivered to the market during the past 12 months. Additional projects are in the pipeline and scheduled for delivery during the next 24 months. Approximately 10,500 units currently are under construction throughout Greater Phoenix, which is nearly identical to the number under construction a year ago. Multifamily permitting totaled nearly 2,400 units during the first quarter, which is 35 percent higher than first quarter of 2017.
Sales of multifamily properties slowed by approximately 15 percent from fourth quarter 2017 to first quarter 2018. This is typical, as many investors close out transactions at year-end. Investors have responded to the strong conditions in our multifamily market by paying more for properties. The median price for a property sold during the first quarter topped $120,000 per unit and cap rates have compressed to approximately 5 percent. Newer units are selling at impressive premiums. The median price paid for buildings built since 2010 was more than $251,000 per unit during first quarter.
The outlook for Greater Phoenix looks bright. Renter demand was very strong during first quarter and net absorption was 33 percent higher than the same period a year ago. Second quarter cyclically softens in Arizona as seasonal residents vacate for cooler climates. However, trends posted in 2017 indicate that the second half of 2018 could prove to be very active.
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