Q2 2012 Phoenix, Arizona Commercial Real Estate Economy

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Q2 2012 Phoenix, Arizona Commercial Real Estate Economy


The bigger they are . . . The spectacular, unprecedented collapse of the Phoenix economy under the twin weights of economic recession and the housing calamity was matched only by the preceding relentless boom. True to its cyclical history, a strong rebound now seems to be underway amid improvements on the jobs front and in the housing market. According to preliminary data as of July provided by the U.S. Bureau of Labor Statistics (BLS), non-farm employment in the local Metropolitan Statistical Area (MSA) was up 2.9% (48,500 jobs) from 12 months prior and was up 4.2% (68,900 jobs) over 24. These are high rates of growth, exceeding national rates. As testament to the severity of the local downturn, however, even these high rates of job creation left employment, per the latest July, down fully 9.1% (171,400 jobs) from five years earlier.


Growth, significantly, is taking place across a broad spectrum of major industry sectors, a reflection of Phoenix’s numerous economic assets. Thus, the area’s growing role as a major distribution center supports job growth in the Trade, Transportation, and Utilities sector: employment therein as of July was up 2.2% (7,800 jobs) from 12 months earlier, according to preliminary BLS data. Manufacturing, which includes a significant high-tech component rooted in the East Valley (in Chandler in particular), had job growth of 1.6% (1,800 jobs) July-to-July, according to the BLS. High-tech giants Intel and Motorola, meanwhile, serve as magnets for high-tech business growth in the area. A case in point is the expansion by Silicon Valley-based Quantenna Communications in Tempe, Phoenix Business Journal (Journal) reported in August. The centrally important Professional and Business Services sector saw a 2.9% (7,900-job) increase over the same time span. Even the Government sector, an effect largely of growth in employment by local government, has shown recent increases: According to BLS preliminary estimates for July, employment by Government was up 1.8% (3,600 jobs) from 12 months prior.


And no trends within the local economy seem more remarkable than the good news emanating from the housing sector; Phoenix, a national housing juggernaut prior to 2008, is showing some signs of its former self. Indeed, even while the state of Arizona ranked second in the nation in rate of foreclosure for first half 2012, the number of foreclosure actions was down 37% year-over-year, according to RealtyTrac. In what the Journal, citing an August report by ASU’s W.P. Carey School of Business, referred to as “huge gains” in home values, the $150,000 median single-family home price for the metro area for June was up 29.3% year-over-year. A slowdown in sales volume in June, meanwhile, was attributed to “the diminishing supply of existing homes on the market.” Phoenix-area inventory was down 33% as of August 1 from a year earlier, according to the report. And the supply of distressed properties, or lender-owned homes, fell at the “staggering” rate of 68% over the same span.


In a true shift in market dynamics, this source adds that “the dwindling supply [of homes] has fueled a huge imbalance of more buyers than sellers in the marketplace, fostering a fiercely competitive environment where homes for sale, especially those priced below $250,000, are attracting large amounts of offers that frequently exceed the asking price.” Strong investor activity, a signal trait of the Phoenix market historically, also has returned. Indeed, with local buyers increasingly squeezed out of the existing-homes market, demand for new homes has increased. Residential construction, accordingly, could see a revival. In a small case in point, Shea Homes is planning to start by year-end on 250 homes in two developments in the southeast Valley’s Johnson Ranch master-planned community, the Journal reported in August. Along these lines, the 8,760 residential building permits awarded during the first seven months of 2012 were up fully 70.0% from the comparable span of 2011. Of this total, 7,516 were for detached single-family homes, up 74.2%.


While it is not yet time for a residential construction boom, the job-loss trend that devastated the construction employment sector in the recent past has been replaced by the return of growth, a trend not yet seen in any number of the nation’s metro areas (a substantial portion of growth likely results from the work at the huge Intel facility). Employment in Construction in the local MSA per preliminary BLS data for July was up fully 6.6% (5,600 jobs) year-over-year. The bulk of this increase is indicated for the Specialty Trade Contractors subsector. (All the same, employment in this segment per the latest July was less than half of the total recorded for July 2006, before the losses began.) Striking a somewhat different tone from what appears to be an increasingly optimistic consensus, Fiserv Case Shiller warns of new bouts of home price declines in the Phoenix area market in 2013 (in the first quarter in particular), the Journal relayed in August.