Exec-Desk: Phoenix Market Updates From Rise48 Equity CEO
We remain bullish on Phoenix for Multifamily Investments because of the strong fundamentals. Phoenix is ranked #1 nationally for population growth, and top 3 for employment growth.
We're seeing a massive influx of new residents, and the Bureau of Economic Analysis recently announced that Phoenix ranked #1 in the US last year in Personal Income Growth at 8.4% (BEA). This is a powerful statistic that indicates tenants can absorb rental increases. People are moving from higher cost of living states to Phoenix and making more money. In addition, there simply isn't enough supply of workforce multifamily housing for all of the demand and people moving here. It's the perfect storm for strong investor returns.
"People are moving from higher cost of living states to Phoenix and making more money. In addition, there simply isn't enough supply of workforce multifamily housing for all of the demand and people moving here. It's the perfect storm for strong investor returns."
Rise48 Equity has completed $215,326,000 in total transactions since 2019, and currently has $175,326,000 of assets under management, all in the Phoenix MSA. We will continue going after deals in Phoenix that meet our conservative underwriting standards. Check out our latest acquisition below.
In 2020, several Americans left states like California, New York, and Illinois for states like Texas, Idaho, and-Arizona. AZ Big Media says their findings show that people left outbound states to get jobs, for cheaper cost of living and to escape harsh winter conditions. Maricopa County leads No. 1, and Metro Phoenix No. 2 for fastest population growth.(AZ Big Media)
Rent Increases in Phoenix
Despite the Covid-19 pandemic, multiple cities in America saw a growth in rentals. Greg Willet of Real Page reports an overall annual increase of 4.2%.
Phoenix saw the highest increase with 15.7% annual growth. Other areas with significant yearly increases include Riverside or San Bernardino with 14.8% and Las Vegas with 13.6%.
According to a real estate article by the AZ Big Media the home price in Phoenix is now at $367,484 which increased by 23.5% over the past year. The average rent cost is $1,620, up or down 17.7% year over year. In Phoenix, the typical time for homes to stay on the market before going under contract is 7 days.
Home buyers find it difficult to purchase homes due to bidding wars, low appraisals, reluctant sellers, and rapid price increases. So, in 2020, home buyers saw an increase in home equity while renters, on the other hand, saw a rent price increase. AZ Central reports rental prices in Phoenix are only expected to go up over the years. This will make the need for affordable housing in Arizona more prevalent than ever.
Phoenix Job Market Update
According to Phoenix Business Journals, Arizona is expected to add nearly 550,000 jobs between 2019 and 2029.
“Both Maricopa and Pinal counties are projected to outpace the state in annual percentage growth, with 1.9% and 1.7% projected growth, respectively." (PBJ)
"Major job announcements, including Taiwan Semiconductor Manufacturing Co.’s massive plant (TSCM) in north Phoenix, Intel’s expansion in Chandler and ElectraMeccanica’s assembly plant in Mesa, along with Nikola Corp.’s plant in Coolidge and Lucid Motors’ plant in Casa Grande are fueling some of the growth in both counties.” (PBJ)
Yifan Yu and Cheng Ting-Fang of Asia Nikkei says that it is one of a few TSCMs located outside of Taiwan.
What is attracting these developments to the area? There is an existing cluster of semiconductor companies that are favorable to the business. Also, there is an ideal geopolitical environment that will work well with that area of business. TSCM is also drawn to the city due to the high number of young people available to fill job vacancies. With new jobs, people will need more homes or apartments, signaling a boom in the multifamily sector.
Microsoft launched their sustainable data center in Arizona. Noelle Walsh says Arizona was chosen because of its abundance of sunshine, land availability, highly skilled workforce, and proximity to customers. In addition to the data center, which is also called "West US 3", Microsoft also plans to invest in education, skills and water conservation in the area. '
Phoenix is also known for its large aviation, defense, and aerospace industry. Erin Thorburn of AZBigMedia says over 9000 employment opportunities in the area fall within the aerospace and defense industry. There are over 50 companies in the Phoenix area focusing on aviation, defense and aerospace service. Some of these companies include Boeing, KinetX and Lockheed Martin and Northrop Grumman.
Multifamily Proves Covid Resilience and Attracts Foreign Investors
International investors are spending as much money on Apartments as they did in the office sector years ago. They are spending billions to buy apartment buildings, hoping to benefit from the regular and steady income that apartment rentals generate.
Bendix Anderson of WealthManagement.com reports that in 2020 and 2021 Multifamily Investment remained at the top of investors' wish list.
Alex Foshay of Newmark Capital explains that many people overseas understand the benefits of investing in US Apartments compared to a few years ago where he would have to explain to them what multifamily was all about. At one point, some people doubted the sustainability of apartment rental investments since apartment leases were only for a year and people were afraid they would lose their investments during periods of economic hardships.
However, during the recession and Covid-19 period, the business remained highly profitable. According to the Yardi Matrix Multifamily Report, May 21, rents have increased by 2.5% year-over-year for the month of May which is above what the actual rent growth was in March 2020 at the start of Covid-19.