Phoenix Apartment Vacancies Tumble to 6.7%

After soaring into double digits, the Phoenix Apartment vacancy rate has returned to pre-recession territory. Vacancy rates peaked to 12.3% in fourth quarter 2009, the highest ever recorded in the Phoenix market since 1988. By the close of first quarter 2012, the vacancy rate plummeted to 6.7% which was the lowest rate seen since 2006. Vacancy is expected to dip slightly lower to 6% by year’s end.

Most telling, however, is the return of construction after 2011’s negligible delivery total. The 453 units that completed construction all told in 2011 amounted to the smallest market-rate total recorded by Reis for the Phoenix market in more than 30 years of coverage.  But it’s coming full-circle from the recession’s collapse of demand and the near-halt of construction. Reis reports 2,706 units in nine market-rate projects are underway and numerous others are in planning stages. Though Reis calls for the completion of only 612 market-rate units in 2012, about 3,600 units are expected to follow in 2013. Net absorption is expected to remain strong for the foreseeable future, although not as strong as in 2010. By 2014, construction completions should have increased enough to create a balance between supply and demand.

While robust pre-recession gains have yet to return in rents, growth at about 2% last year was a good start. Reis’ current forecast calls for respective increases of 3.1% and 5.1% for asking and effective rent averages in 2012, respectively. The recession’s losses suffered by these rates are expected to be recovered well before the end of 2012.

Slow and Steady in Office Sector

Although 2012 began slowly for the Phoenix Office market, Reis expects demand to pick up in the quarters ahead. Vacancy rates have slipped to 26%, down from the peak-recession rate of 26.6% recorded in first quarter 2011. Three years of negative net absorption were followed by a positive turn last year. First quarter 2012 followed with a slowdown, but a still positive net absorption of 79,000 square feet. Development has also picked up in Phoenix’s office sector. Reis counts 676,100 square feet of competitive space as currently under construction metro-wide. The return of positive net absorption in 2011 has been accompanied by the stabilization of rents. The year 2012 is expected to see modest rent growths of 1.1% and 1.4% for asking and effective rent averages, respectively.

Retail Market Showing Signs of Growth

After peaking at 12.1% in first quarter 2011, vacancy dipped to 11.8% by the end of first quarter 2012 and continued to slip to 11.7% by the end of April. Averaging 1.5 million square feet of new product per year for 15 years, the neighborhood-community center sector was slowed by the recession in 2009. By 2011, only a single project of 66,000 square feet was completed. In a moderate increase, 435,000 square feet is expected to deliver in 2012. Asking and effective lease rates for the quarter were up 0.2% and 0.3% since year end. While the growth is modest, it marks the first instance of growth for both rates since the third quarter of 2008.

Photo: Sunset in the Desert, Phoenix, Arizona (photo: Flickr/ cobalt123)