Tucson MSA's Multifamily Market 2016 Year of Recovery

PHOENIX - Jan. 26, 2017 - PRLog -- The Tucson MSA multifamily market, after years of general stagnancy following the Great Recession, saw renewed investor interest in 2016.  Many of the larger western MSA's are reaching, and exceeding, previous peak price per unit amounts has caused investors, on the hunt for higher CAP rates, to look to qualified secondary and tertiary markets.  Tucson which saw tremendous economic and job announcement activity in 2016, with little in the development pipeline, is fast becoming the 'go-to' secondary market for multifamily investors

Tucson Market Metrics: By the Numbers

The MSA's total sales volume (10+ unit properties) increased 26%, year-over-year, to $502M across 96 total transactions with 8,406 total units sold or 7% MV (Market Velocity which is calculated by dividing number of units sold by total number of units).  In fact, Tucson's MV rate has increased nearly 158% since 2013 due to increased investor interest in solid performing secondary markets.  Nearly 40% of all unit transactions went to California investors, the most active buyers during 2016, followed by Arizona investors at 24% and Colorado based investors at 15%.

The 10 to 99 unit properties witnessed the most dramatic percentage increase in sales volume rising 42% y-o-y to $76M.  Additionally, 10 to 99 unit properties saw the highest increase in y-o-y sales price per unit amounts rising 16% to $38,765.  100+ unit properties also saw a significant increase in sales volume rising 24% y-o-y to $426M, however average sales price per unit amounts contracted (1%) to $66,042.

Casas Adobes/Oro Valley submarket accounted for 30% of the transactional volume throughout the Tucson MSA with $151M in total sales which was a 251% increase over 2015.  Southeast Tucson was 2^nd in overall transaction volume rising 42% y-o-y to $101M.  West Tucson came in 3^rd for transaction volume rising 391% to $74M.  Although 4^th in overall sales volume at $48M in transactions, the Catalina Foothills submarket witnessed the greatest year-over-year percentage sales volume increase rising 1,443%.

In regards to new construction, Tucson MSA had 810 new units delivered in 2016, although above the region's 20 year average it was below 2014's peak of 1,294 unit deliveries.  Despite elevated construction delivery schedules both average rent and occupancy increased for the MSA, by 5.9% to $775 and 1.1% to 94.3% respectively.

Market Comparisons

The Tucson MSA when compared to other Western MSA's, as evidenced in the chart, is still 14% below peak 2007 sales price per unit amounts.  It stands to reason that investor interest has lagged due to the fact that Tucson's emergence from the Great Recession of 2008/9 has only recently materialized.  After years of stagnation, Tucson saw tremendous economic development activity in 2016 which began with Afni's announcement to hire 500 for its call centers.  This was followed by Comcast's call center expansion with 1,000 jobs, Caterpillar's 600 jobs plus Regional HQ expansion, C3's 1,100+ call center job announcement and ending with Raytheon's proposed expansion to bring nearly 2,000 high paying jobs to the region.

The Road Ahead

As stated in our 2017 Market Forecast, it is unlikely the Fed will continue its announced interest rate increases in 2017, having stated so the previous two years with nary a hike made.  Despite this assessment, 2017 should prove to be a highly volatile year especially in international markets, i.e. Europe and Asia.  The EU, already in a precarious state over Brexit and the Italian Referendum, will see continued instability and uncertainty especially with both German and French elections just on the horizon.  Asia, and specifically China, has and will continue to see reduced growth with various asset bubbles in danger of bursting.  The net result will be continued capital flight from both regions to more stable areas in the West.

Closer to home, Arizona is poised for continued economic gains as both people and jobs seek more business and tax friendly areas in the West.  Tucson, which has struggled to find its Post-Recession footing, made major steps in 2016 to finding economic stability.  Given the change in US political affairs, Tucson, especially Raytheon, stands to benefit if the proposed increases to defense spending actually materialize.  Additionally, albeit more slowly than Phoenix, Tucson has slowly begun to diversify its economic base, long dominated by education and defense spending.  The most salient examples of this nascent diversification are Caterpillar's Regional HQ expansion to Downtown Tucson and World View's HQ and SpacePort construction.  While it remains to be seen if these attempts at economic diversification take hold, it does belay an ardent attempt among Tucson area economic planners to usher in a new era of growth.

To view the entire report please go to: http://abimultifamily.com/abinsight-tucson-msa-multifamily-2016-year-end-report/

ABI Multifamily is the Western US's leading multifamily brokerage and advisory services firm that focuses exclusively on apartment investment transactions. The experienced advisors at ABI Multifamily have completed billions of dollars in sales and thousands of individual multifamily transactions. ABI Multifamily incorporates a global approach with regional real estate expertise to successfully complete any multifamily transaction, regardless of size and complexity.