Phoenix is one of the top 10 markets for class-B rent growth, according to a new report from CBRE. The ranking illustrates the intense growth in the market, and has fueled substantial value-add investment activity. The rent growth in this specific segment of the multifamily market illustrates Phoenix's value proposition is affordability, which has fueled population and job growth in the market in recent years.
“Phoenix is really a top growth market,” Brian Smuckler, SVP at CBRE, tells GlobeSt.com. “We are a top five market for rent growth as well as occupancy rates and affordability. Right now, about 20% of income goes towards rents for multifamily, and we are seeing really strong employment growth. We are seeing a lot of net in migration because of jobs. Those are the most important areas for really strong multifamily fundamentals, and that is why a lot of investors are looking at Phoenix.”
As a result of the strong rent growth in class-B and class-C housing, value-add investors are seeing tremendous opportunities. According to the report, there has been $375 billion in workforce housing investment activity in the last five years. That number represents more than half—51.3%—of total multifamily investment. “Phoenix has really strong capital demand, and I think that it is because of the value proposition here. We have a growing population and labor pool,” explains Smuckler. “We have a much more diversified employment base that we did a decade ago. When you factor in the affordability, the quality of life and the fact that Phoenix is a really business friendly environment, it really bodes well for multifamily fundamentals. The capital then follows that.”
Generally, private capital and syndicators have been the most active players in Phoenix's class-B market. While the capital players haven't changed, Smuckler has seen more interest from investors outside of the Phoenix market. “Class-B multifamily has grown in higher demand because the returns in primary markets like Los Angeles and Seattle have become less attractive,” he says. “There is not only an affordability from a renters' standpoint, but also from an investors' standpoint. For being a top five metro in population, Phoenix is still very affordable compare to some of the coastal cities like Los Angeles and San Francisco.”
While there are more opportunities in the market, especially compared to primary coastal markets, landing deal is still challenging and competitive. “There is still a limited supply of properties, especially in the B- and C-asset class,” adds Smuckler. “Those buildings offer a value-add component, and that is really the asset class choice for most investors at this stage in the cycle.”
Despite the competition, there hasn't been an increase or preference for off-market transactions. “The majority of transactions still get listed formally for sale because there is such a high demand,” says Smuckler.
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Kelsi Maree Borland
