Thousands of apartments in development pipeline: Is Arizona headed Towards a Bubble

    aptconstructionDevelopers keep on churning out new apartments with 7,200 new units slated to hit the Phoenix market this year as many as 22,200 proposed or construction.

    That is according to a new analysis of the local market by the Marcus & Millichap real estate firm.

    Submarkets such as Tempe, downtown Phoenix, Scottsdale, Gilbert and Chandler are slated to see thousands of new apartments hit the market over the next three years, according to the Marcus report. Most of the construction cranes and construction sites around town are for new apartments and condos.

    There are fewer new office projects but plenty of development plans for apartments in a local market that’s already delivered 11,500 new units since 2014.

    Are there enough tenants to fill those units? Or is Phoenix headed for another one of its rounds of real estate overexuberance and speculation and another bubble?

    Tyler Anderson, vice chairman of capital markets and a multifamily expert with the CBRE real estate firm, doesn’t think so.

    “The pipeline is watched carefully, but Phoenix’s fundamentals are strong compared to alternative markets,” Anderson said.

    He doesn’t see the supply of new apartments getting out of whack of the historical average and said demand is still strong.

    The Marcus report shows the Phoenix market with a 5.2 apartment vacancy rate. That’s the tightest since 2006.

    Industry watchers also look at demographic trends of employers locating operations where there are younger workers, restaurants and other amenities and on Metro light rail.

    That is helping drive units to downtown Phoenix, south Scottsdale and stronger East Valley job markets.

    Arizona State University students and the school’s growing footprint in downtown Phoenix is spurring more multifamily projects and plans.

    But still there are questions as to whether the downtown can absorb 4,000 units or more over the next couple of years or all those mulitfamily rezonings or blueprints will come to fruition.

    Anderson said the key is job growth and he points to expectations of an improving employment market.

    “Importantly, industries including health care, financial activities, and professional and business services are significantly contributing to this growth and a lot of multifamily developers take note of proximity to knowledge-based employment when selecting markets for development,” Anderson said.

    On the ground, landlords continue to flip, sell and invest in existing complexes.

    The 204-unit Bayview Apartments in Mesa, for example, recently sold for $18.6 million, according Institutional Property Advisors Senior Director Steve Gebing, who helped broker the deal along with Marcus & Millichap Senior Director Cliff David.

    By: Mike Sunnucks

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