Positive forces converge and are maintaining momentum in the multifamily sector, according to Marcus & Millichap’s Multifamily Research Market Report for second quarter 2017. Vacancy is expected to fall for the eighth consecutive year as economic growth supports continued success in the Phoenix apartment market. Corporate expansions and relocations from large, international companies such as Intel, Apple and Orbital ATK are driving healthy metro-wide job growth and carrying momentum in 2017. Additionally, the metro is expected to add an estimated 81,000 net residents this year, underpinning household formation that exceeds the national pace. Furthermore, expansion among the prime renter cohort of 20- to 34-year-olds is robust and accelerating.
Improving property operations combined with healthy returns will sustain investor interest for Phoenix apartments this year, though buyers are becoming more conservative in their underwriting. A combination of higher borrowing costs, tempered revenue growth expectations and threats of new supply are the main forces instilling caution in the market.
Construction is approaching saturation point at the top of the renter pool. Developers have added thousands of units to the market over the past few years, focusing primarily on high-end complexes near employment hubs. Although strong demand has, historically, been able to absorb new construction, supply pressures are mounting, particularly in the Class A segment. A short-term rise in Class A vacancy, slowing rates of rent growth and the increased use of leasing incentives seem in order during the near term as new supply hits the market. The Greater Phoenix metro, however, is on pace to record improvements in both vacancy and rents in 2017.
