Phoenix’s Rental Demand on the Rise

With an employment growth rate that will outpace the national one, Phoenix is on the path of having its fifth consecutive year of real estate growth and economic improvement.

Phoenix

With an employment growth rate that will outpace the national one, Phoenix is on the path of having its fifth consecutive year of real estate growth and economic improvement, according to research data from Marcus & Millichap.

The recovering economy will bring about an influx of new residents to the metro area that will undoubtedly lead to higher rent demands and to lower vacancy rates.

In 2014, employment in the metropolitan area is projected to increase by 54,700 jobs, quite a significant improvement over 2013, when only 41,400 jobs were added. In response to this, the real estate market will have to accomodate new household formations. The new formations are expected to be absorbed mainly by multifamily properties, due to the single-family lending standards remaining high. In addition to  the strict lending standards, when it comes to the sale of single-family homes, Phoenix has been seeing a consistent decline for the past two years. Taking into account these difficulties, the focus will remain on the multifamily sector, not only for developers, but also for potential buyers.effective rent trends

In spite of areas where vacancies rates remain relatively high, developers are expected to increase production in Phoenix for the second consecutive year. One such example is Scottsdale, where the completion of several luxury rentals ramped up vacancy rates to roughly 6.5 percent. This year, approximately 4,500 new residential units will be added to the market. It’s the largest volume since 2009, contrasting with last year’s 3,900 units that had been completed.

The research data points to a significant increase in demand in 2014. Therefore, vacancy is expected to fall 30 basis points to 6.9 percent. Regionally, real estate operations in the north Tempe/Arizona State University will be the lowest due to vacancy rates barely passing 4 percent. Consequently, a significant amount of renovation projects is expected to surge in these areas.supply and demand

As far as institutional investors and REITs go, the focus will remain on the newer Class A properties, with investors bidding aggresively on these assets in locations that feature a steady rental demand. Class B and C assets with value-add components will also be desirable assets to investors.