What is Fueling Multifamily Demand in the Southwest?

John Cunningham, EVP for JLL’s Capital Markets Group.

LAS VEGAS—Job growth is fueling multifamily demand in Phoenix and Las Vegas, due to the recovery of housing prices. That is according to John Cunningham , EVP for JLL ‘s Capital Markets Group, who chatted with GlobeSt.com on all things multifamily in the Southwest in the Q&A below. GlobeSt.com: Can you describe investor sentiment during Q1 for multifamily product in the US Southwest region? John Cunningham: The Southwest, much like the rest of the US, saw a tremendous amount of multifamily activity in the first quarter as investors saw plenty of opportunity to place capital in markets such as Phoenix and Las Vegas where both value add assets and core investment continues to expand. Several markets, including Phoenix and Las Vegas, saw big rent growth—especially with core class-A product with access to the Central Business District—congruent with the unemployment rate dropping. These markets present investors the opportunity to capture velocity associated with economic recovery that is now just beginning to convert into economic expansion. GlobeSt.com: Which Southwest markets are seeing the most demand and why? What investor groups are most active? Which types of properties are seeing the most investor interest and competitive bids? Job growth is fueling multifamily demand in Phoenix and Las Vegas, due to the recovery of housing prices. Cap rates are remaining stable at historically low levels right now thanks to solid investor demand and the availability of attractive financing opportunities. Institutional investors, private equity and regional players are all active in these markets with a noteworthy increase of institutional demand in Las Vegas. Investors are recognizing the strong fundamentals in these markets attributed to equilibrium of supply and demand. Capital constraints, unlike previous cycles, have maintained a manageable level of development compared to markets that have previously been considered high barrier to entry. GlobeSt.com: Investors are increasingly targeting Las Vegas multifamily product—what dynamics are fueling the market’s investment activity? Las Vegas was slower to recover but is making up for lost time. The economy is strengthening and in addition to the uptick in tourism, the job market is becoming more diversified. New product has increased the city’s vacancy rates slightly, but that has yet to effect rent growth or absorption, which is keeping Las Vegas very attractive to investors. GlobeSt.com: Looking ahead, any predictions for Las Vegas and the Southwest region’s multifamily market? As jobs continue to flock to Southwestern markets, the multifamily sector will see increasing demand, which means rents will inevitably go up and cap rates will compress. To see where the region is headed, one needs to look no further than what already happening in San Diego and Inland Empire in California. Both are seeing job growth but from different sectors (one with tech the other with industrial jobs), yet the result is the same: cap rates have compressed into the low fours and fives. Whether markets like Las Vegas and Phoenix will see that much compression remains to be seen, but the sector continues to be a solid but for the foreseeable future.