ABI Multifamily Phoenix MSA 3Q 2016 Quarterly Report: The Californian's Are Coming!

PHOENIX - Oct. 27, 2016 - PRLog -- In the early stages of our current multifamily housing investment boom, investors and developers had initially focused their investment dollars on the coastal regions where population and job growth were higher. In early 2010, these coastal regions, such as San Francisco, Los Angeles, Seattle, Portland, Boston and New York to name a few, looked relatively cheap compared to their price points today. A prime example of this investment strategy is Sam Zell's Equity Residential who, after their merger with Archstone, sold off many of their interior US holdings to focus on the major coastal markets with high barriers to entry.

Phoenix MSA Multifamily Welcomes Investors

Beginning in 2015, and significantly increasing throughout 2016, many of those same coastal investors were priced out of those markets (aside from the larger institutional investment firms/REITs) and/or have sought to protect investment gains made by diversifying their portfolio into other markets. Arizona, particularly the Phoenix MSA, has been a prime benefactor of this overall investment shift. Phoenix, and surrounding environs, offer investors sustained population growth (2nd in the US for domestic net migration), a 5% unemployment rate and leading high wage job growth for the region with most new jobs paying above $45,000 per year.

Whereas many markets across the US have either met or exceeded peak sales price per unit amounts, as shown in our ABInsight© article, "Cry Havoc, and Let Slip the Dogs of NIRP," the Phoenix MSA, is still an average of 7% below peak 2007 pricing.  Despite Phoenix's robust multifamily construction growth, with total unit inventory increasing nearly 5% from 2013 to 347,620 units (10+ unit properties), has not stopped Phoenix from reaching historic occupancy and average per unit rental amounts at 95.6% and $970 respectively. Additionally, the Metro is leading in renter retention, which at nearly 55% is some 3% higher than the national average.

Investor Profiles

Through the period ending 3Q 2016, the Phoenix MSA saw $3.6 billion in total multifamily transactions (10+ units per property), which is a 51% increase from 2015 and 88% from 2013. The most significant increase in activity came from California-based investors, who purchased a total of 15,265 units across Metro, an increase of 27% over the same period in 2015. In fact, California-investors accounted for nearly 45% of total units transacted in 2016.  Arizona-based investors were a distant 2nd with 8,027 units purchased which is a 21% decrease from 2015.  Rounding out the Top 3 were Canada-based investors who purchased 3,439 units, an 8% increase over 2015.

The Tucson MSA, whose total sales volume has increased 236% from 2013 to 2016's $365 million level, saw a 54% increase in activity from California-based investors who purchased 2,680 units, up from 1,736 units over the same period in 2015. Arizona-based investors came in 2nd with 1,325 units purchased, down 43% from the previous year, and Colorado-based investors came in 3rd with 1,280 units purchased up a whopping 556% from 2015.

Conclusion

Despite sustained average per year rental rate increases of approximately 4%+, elevated construction amounts (although nowhere near peak building), the Phoenix Metro is at historical highs both in terms of occupancy and renter retention. Looking beyond the Arizona borders, where Central Banker induced NIRP (Negative Interest Rate Policy) and ZIRP (Zero Interest Rate Policy) policies pervade most of the developed world's markets has investors, the world over, on the hunt for yield.

Although there are those who disagree, I anticipate stasis of domestic interest rates and further dives into deeper negative rates for most of Europe/Asia which has the potential to set off massive capital flights to preservation as opposed to yield.  In Phoenix, we're already experiencing some of that premium pricing setting in, however is not as extreme as those markets on the East/West coasts. As such, I would expect both the Phoenix and Tucson markets to continue their upward trends through the end of the year and well into next.

To access the full report go to: http://abimultifamily.com/abinsight-phoenix-msa-multifami...