Roland Murphy
The Phoenix market is on fire, and multifamily is seeing the biggest benefits of the market growth. There is increased investment activity and strong demand, yet despite the good news, Phoenix apartment rent growth is only nominal year-over-year. According to a recent report from ABI Multifamily, rents in the Phoenix metro grew only .6% year-over-year.
“We were second only to Las Vegas in average rent growth and have recently taken the top spot in median rent growth,” Roland Murphy, director of Research ABI Multifamily, tells GlobeSt.com. “It would be easy to assume with our positive population and employment deltas that rents would skyrocket, but that ignores some important practical realities.”
For example, when apartments don’t rent immediately, it can impact the rent growth numbers in the market. “Owners are generally very savvy. Even in a hot market like Phoenix, it takes time to turn a unit that’s been vacated, and a unit that sits empty for a couple months doesn’t generate any income, even if it’s pre-booked for the moment it becomes available,” says Murphy.
For Phoenix, the game is more about tenant retention than it is about rent growth. “As a result, unless you’re looking at a sweeping value-add proposition where you move an asset up a full class, it’s in your interest as an owner to be concerned about retaining the tenants you have, particularly in larger developments,” explains Murphy. “Even if you can eventually lease every unit you have for 15% more than current rent, you’re going to price out a significant share of your existing base, which means a couple months of vacancy and money spent on new carpet, paint, basic repairs, etc.”
Murohy’s focus in balancing the new demand and supply. “As a market, Phoenix is doing exceptionally well in managing that balance.,” says Murphy. “The market hit a new high of 50% in lease renewal conversions in Q1 with renewal rent growth of 6.3%. Both of those rates are second in the country, once again just slightly behind Las Vegas.”
The stabilized rent growth could also be the result of a stabilizing market. “Also, we have to go back to that uncharted territory in terms of when the next downturn is going to hit.,” says Murphy. “When it finally does, the properties that raised their rents most aggressively are going to see the highest attrition when people start tightening their belts. If your complex and a property down the street are fairly similar in terms of your tenant appeal factors, and you’ve gone $150 a month higher than they have, you’re going to have a harder time keeping existing tenants and attracting new ones.”
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Kelsi Maree Borland
