The Phoenix apartment market is officially on fire. In the first half of the year, sales volumes for multifamily communities with 100-plus units increased 20% and represented $3.02 billion in total investment activity, according to research from CBRE that GlobeSt.com has seen exclusively. The investment activity is the capital recognition of significant population and job growth Phoenix has been experiencing for the last several years.
“It is all about the fundamentals. Phoenix sits at the top of almost every major economic indicator,” Matt Pesch, EVP in CBRE Phoenix multifamily institutional Properties group, tells GlobeSt.com. “In population growth and job growth, Phoenix not only leads but leads by a large margin. That translates into pretty robust demand. Then, on the supply side, there is a huge under supply story going on where we are not building enough housing for the demand that is being created. The result has been significant rent growth.”
In May 2019, Phoenix topped the nation for apartment rent growth with an increase of 6.8%, second to Las Vegas, which has 6.6% rent growth for the month. Asset pricing is also increasing significantly as more capital is arriving to the market. “Pricing is up significantly because you have a lot more capital than you have product for that capital to buy,” says Pesch. “Cap rates in the last year are down about 25 basis points, and you are seeing that reflected in pricing. That helps the volume number as well.”
Phoenix has been on the top of investment target lists for the last year, but Pesch says that it takes time for investors to shift strategy and respond to rising trends. That could point to why sales volumes suddenly picked up while fundamentals have been improving for years. “Interest rates moving down has been really helpful, and it has pumped new life into the marketplace relative to the fourth quarter. But, it takes time for companies to pivot, so when Phoenix was started flashing green to some companies, it took some time for that movement to happen. In the first half of this year, I think you have seen the culmination of all of that come together,” he says.
Phoenix is hitting its stride at a good time. Other markets, particularly on the West Coast, are reaching maturity, and capital is searching for yield. Phoenix's strong fundamentals have proven to be the perfect landing pad for those investors. “We are at this point in the cycle where market selection matters,” says Pesch. “There is a lot of capital trying to find ways to outperform. When you step back and look at the fundamentals in Phoenix, it is one of the preferred markets throughout the country. That is why you are seeing this movement in volume but also pricing move significantly as well.”
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Kelsi Maree Borland
