Why Phoenix Real Estate Still Has Fairway Ahead
Instead of comparing the Phoenix real estate market to a baseball game and its innings, the speakers at our Phoenix State of the Market event decided to compare the market to an 18-hole golf game. Where's the market now? The consensus—not quite everyone, but close—was the 11th or 12th hole. There's still some game to go.
In the commercial property market, our speakers said the fundamentals are still strong. For instance, the Phoenix office market is about 16.6% vacant, down 150 basis points since last year, seeing about 1.42M SF absorbed in that time. Also, asking rents are up about 5% since this time last year. In the retail sector, about 393k SF of retail has been absorbed over the year, and rents are up too.
Even so, some properties are doing a lot better than others, with Phoenix markets seeing the sort of bifurcation that a lot of markets are experiencing. The best locations are benefiting from growth in demand for space, while assets in B locations aren't doing quite as well. In retail in particular, there's a flight to quality among the strongest tenants. Some of the older retail properties will probably have to be reimagined as mixed-use or other kinds of assets.
The commercial property panelists included Lawrence & Geyser Development president Jeff Geyser, ViaWest Group founding partner Gary Linhart, Evergreen Devco principal Tim O'Neil, BBG managing director Jay Ramos and Colliers International EVP Phil Breidenbach, who moderated.
Phoenix hospitality is also doing very well, our speakers said. Hospitality is seeing RevPAR up more than 9% over the year, and occupancies and room rates are up too. Business travelers want to come here—and perhaps more importantly, Millennial business travelers want to come here. Even Airbnb hasn't really proved much of a threat to local hotels, perhaps since that kind of rental attracts people who wouldn't stay in business-class hotels.
Why the 11th or 12th hole? Because the market is fairly stable between landlords and tenants, and between buyers and sellers, though there's competition for the very best properties. It isn't 2008 again, our speakers asserted. So there's still runway ahead. The lending environment is subdued compared with the last cycle. And Phoenix isn't as late in the cycle as some of the coastal markets.
The event was held in raw space at the Biltmore Center, a three-building complex by ViaWest Group in the Camelback Corridor submarket, on 24th and Camelback in Phoenix. Colliers International is leasing the space.
In Phoenix's multifamily sector, Downtown Phoenix is in the middle of sea change. Downtown has always had a large workforce, but not much housing. Soon it will, with development underway to meet the demand for people who want to live there. The nighttime population in Downtown Phoenix is going to double in the next year or two.
Why do people want to live there now? Restaurants and other amenities have come, and living Downtown means being able to walk to them. If you work Downtown as well, that means driving your car much less often, something that's appealing to Millennials.
When will there be too much new multifamily in Phoenix? Not for a while. The new communities are filling as fast as they're being built, so the demand for Class-A properties is there. So is the demand for workforce and affordable housing, but in that case the supply isn't growing nearly as fast, which will be a serious challenge for Phoenix in the near future, as it is in many growth markets.
The multifamily panelists included MODUS Development president Ed Gorman, Walker & Dunlop SVP Brandon Harrington, Alliance Residential managing director Ian Swiergol and Cambridge Properties' Marcia Karasek, who moderated.