The Metro Phoenix Apartment Market (Q1 2019)
Sales volume was strong in the 1st quarter of 2019. There were 70 individual apartment transactions with 10 or more units, plus 25 additional that were part of portfolio sales. Of the 70 individual sales, only 5 paid “all cash.” “Flips” (properties held less than 3 years) accounted for 33% of the transactions and 19% had at least one side with a 1031 leg.
Town Hall Meetings – Good Info.
At our last Town Hall Meeting we had almost 100 attendees and focused on “How to Find Apartment Opportunities.” In addition to the insight from our group, we had representatives from CoStar, Yardi Matrix, Vizzda, American Title, Lane-Nach (legal) and Avant Garde RMS, with each talking about what they offer to help acquisition. If you need contact info for them, let us know. Our next meeting was Wednesday, June 12, and covered apartment exit strategies as well as our apartment market update.
2019 New Apartment Construction Still Strong
In Q1 2019, there were 10 projects completed with a total of 2,521 units. Six of these were in Phoenix, three in the West Valley and one in Chandler. Also during Q1, four projects were started with a total of 887 units (2 in Phoenix, one in Mesa and one in Glendale). As of 4.13.19 there were 75 projects Under Construction with 13,894 units, 90 Planned with 21,672 units and 92 Prospective with 21,545 units. Almost half of the projects under construction are in Phoenix (22 with 5,049 units) and Tempe (10 with 2,551 units). The total number of units in the pipeline is 57,111. That’s 4,190 units more than at the beginning of this year (52,921). Although there are increased costs for materials and labor plus a labor shortage, with the continued strong occupancy and climbing rental rates, developers’ bottom lines still warrant more apartment projects.
Highest Rent Growth in the US in 2018
In 2018, Metro Phoenix surpassed Sacramento for the highest rent growth in the US–reaching just over 8%. For all class apartments, occupancy remains strong, ranging from 94.6% to 95.3%. The continued strong population growth and lack of supply continues to drive rents higher. The average rental rate in Q1 increased 1.8% for Class “A,” 1.2% for Class “B” and 1.2% for Class “C” apartments. That’s still strong for just three months!
Our Economy – WOW
In 2018, Maricopa County (essentially metro Phoenix) was the fastest growing county in the US. We also had the highest apartment rent growth for a metropolitan area in the US – just over 8%. While the reported increase in population for 2018 was about 81,000, this number may be substantially higher due to persons entering our area and not being counted because they did not establish a mailing address. The media is reporting at least 100,000 persons crossed into AZ from Mexico last year. Since metro Phoenix represents +85% of the state’s economy, it seems logical that a good portion of these persons are now living here–and not being counted.
Across the entire US, the apartment industry is strong–well sort of. Metro Phoenix is similar to many states in that occupancy is strong and rents are increasing. With the increase comes a shortage of affordable housing. Here’s a headline that should get your attention: “A Rent Control Comeback Is Breathing Down The Neck Of The Apartment Industry” (BizNow, April 23, 2019). While laws in the west coast states are imposing rental limits and restrictions on landlords, Arizona has not faced these–yet.
How to Find Apartment Opportunities
This was the focus of our last Town Hall Meeting. If you are doing your own legwork to find an owner willing to sell, it’s essential to have good databases. We had representatives from each at the meeting. CoStar offers info on all commercial property types plus info on each sale comp. For apartments they go down to smaller unit sizes–often less than 20 units. CoStar and their other company, LoopNet, list properties “for sale.” Trepp offers info on larger properties (including financials) with a searchable database of when government loans are in trouble or expiring. Yardi Matrix covers bigger buildings (50 units or more). Their website is very user-friendly with in-depth market and property info. Vizzda provides data on all commercial property sales and reports the basic public info the day after a sale is recorded (often with ownership contact info). Access to all these databases is fee-based and costs money. American Title (ATSA) not only provides great title service but also provides investors free searches using county information to help locate smaller sized apartment opportunities. If you are doing your own searching, some of these databases/companies would be essential—OR call us. We have these databases and the insight on how to maximize their value!