Q2 2012 Phoenix, Arizona Apartment Submarket Trends

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Q2 2012 Phoenix, Arizona Apartment Submarket Trends

Scottsdale

  • Scottsdale and adjacent areas of north Phoenix play host to the region’s most affluent demographics. Developers added thousands of apartments here in the middle and late 1990s.
  • Residential affluence in Scottsdale made its submarkets top choices for condominium conversion and development during the condo boom prior to the recession.
  • Reis reports on two Scottsdale submarkets—North Scottsdale-Fountain Hills (including proximate areas of north Phoenix) and South Scottsdale.

North Scottsdale-Fountain Hills

  • No market-rate units have delivered in the North Scottsdale-Fountain Hills submarket since 1,028 completed in 2010.
  • Absent newly delivered supply, net absorption for the first half of 2012 was 154 units. Last year’s total, also with no new deliveries, was 291 units.
  • Vacancy ended the second quarter at 4.6%, down 30 basis points for the quarter, down 140 year-over-year.
  • Rent growth picked up during the second quarter. At $1,021 and $931 per month, respective asking and effective average rates for the period were up 0.9% and 1.2% from a quarter earlier and were up 1.0% and 1.5% year-to-date.
  • No market-rate project completions are expected for 2012.
  • The 388-unit San Norterra at Norterra and North Valley parkways broke ground in January. The completion date is not specified. Mark-Taylor Inc. is the developer.
  • Reis reports 3,208 market-rate units in 10 projects in the planned-proposed pipeline as of late August, up from 2,478 units in eight projects some three months earlier. But for one project, construction start dates were not specified.
  • A November 2012 planned start date is cited for the 240-unit, four- building Residences at Zocallo Plaza at N. 73rd and Greenway Hayden Loop near Scottsdale Airpark. City council approved the project last October. Renter move-ins are expected to begin by mid-2013.
  • More. B. Bell & Associates Inc. and Investment Property Associates bought the 5.8-acre site for $10.25 million, The Arizona Republic has reported. The seller was Chicago-based Scottsdale Place LLC.
  • Commentary. “Apartment developers coveted the site because of its proximity to the Scottsdale Quarter, Kierland Commons in Phoenix and nearby office parks.”
  • Scottsdale Quarter. Reis reports 238 market-rate units planned for the third phase of the Scottsdale Quarter mixed-use development at 73rd and E. Butherus Drive.
  • More. Earlier, master developer Glimcher Realty Trust selected Zaremba Group to develop an $80 million apartment component at Scottsdale Quarter, as reported previously.
  • One Scottsdale. TDI Real Estate Holdings LLC has paid $16.6 million for 17 acres at Thompson Peak Parkway and 74th Street (within DMB Associates’ 100-acre One Scottsdale master-planned community) toward the development of a 388-unit luxury apartment complex during the latter half of 2014, the Journal reported in July.
  • More. Reis reports a 289-unit second phase proposed for One Scottsdale.
  • A new announcement. Resmark Apartment Living and joint venture partner Greystar (jointly as GS Desert Ridge Holdings) announced plans in mid-August for a 370-unit apartment project on a 13.9-acre site at Deer Valley Drive and 56th Street within the Desert Ridge master planned community, the Journal reported at the time.
  • The largest project (for a single phase) in the pipeline as of late August was the proposed 605-unit Sunrise Airpark Apartments at N. Hayden Road and N. 84th Street.
  • The 750-unit Fireside at Norterra condominium development from developer Del Webb is under construction at N. 21st and W. Casino Avenue for completion in May 2013. A list price range of $165,000 to $294,900 has been cited.
  • Outlook. Reis expects 2012 to produce slightly more than 300 units of positive net absorption alongside no new supply deliveries. The vacancy rate will slip to 3.7% by year-end. Completions, however, should pick up in 2013 and after; small increases in vacancy are expected.
  • Rent growth should improve as the year progresses: respective gains of 2.9% and 4.1% are forecast for the asking and effective averages for the year. Larger gains should proceed in 2013; still larger ones could follow in 2014.

South Scottsdale

  • The South Scottsdale submarket, which includes downtown Scottsdale, has seen no market-rate apartment projects complete construction since 2000.
  • “Scottsdale’s first wave of apartment development is advancing downtown but the big surge isn’t expected to sweep across the city until next year,” The Arizona Republic reported in late August 2012.
  • Commentary. “Scottsdale was flooded with rezoning requests, and plans over the past two years to build apartments after a decade with only a few hundred new units added to the city’s housing supply. Most of the projects were approved but there has been a lag in development while builders finalize their plans and secure financing.”
  • First half 2012 market-rate net absorption was 43 units following 147 all told last year.
  • Vacancy ended the second quarter at the low rate of 3.7%, down 10 basis points for the quarter, down 100 year-over-year.
  • Rent growth is strong. At $864 and $777 per month, respective second quarter average asking and effective rents were up 1.3% and 1.5% for the quarter and were up 2.2% and 3.1% year-to-date following respective gains of 3.3% and 3.8% in 2011.
  • Construction is making a return. Reis reports three projects with a combined total of
  • 557 market-rate units underway per its late-August report on individual construction projects. All three broke ground this year (see below). Others have been announced.
  • The 210-unit first phase of Optima Sonoran Village broke ground in January at
  • 6801 Camelback Road. A completion date was not specified. A 229-unit second phase is planned.
  • The 83-unit Skysong 1 broke ground in July at W. McDowell and N. Scottsdale roads. A completion date was not cited. Three additional phases with a combined total of 245 units are planned. Mark Taylor is the developer.
  • The latest start was the July groundbreaking for Alliance Residential’s 264-unit Broadstone at Lincoln and Scottsdale apartments at N. Scottsdale Road and Lincoln Drive.
  • More. The project is one of three new local luxury apartment endeavors by Alliance for a combined total of nearly 800 units and a combined investment total of $144 million, the Journal reported in August.
  • Alliance’s other venture in this submarket is Broadstone Scottsdale Waterfront at N. Goldwater Blvd. and E. Montecito Way. Reis cites 259 units. (The third in Alliance’s luxury apartment trio is located in the Central Phoenix North submarket.)
  • In addition, Reis reports 3,602 market-rate apartments in 15 projects in the planning-proposal pipeline, up from the 2,293 units in eight projects reported six months prior.
  • A December start is planned by JLB Partners for a 369-unit project at the Portales Place site at Goldwater Boulevard and Highland Avenue. A condo project was originally intended for the 9.7-acre parcel.
  • Other major projects in planning stages include Gray Development Group’s $135 million, 13-story, 867-unit Blue Sky apartments at N. Scottsdale and E. Camelback roads.
  • Zaremba Group’s proposed twin-tower, 420-unit Scottsdale Goldwater Development luxury project is intended for a site at E. Indian School Road and Goldwater Boulevard in downtown Scottsdale. The project replaces one proposed earlier for the site by The Hanover Company but terminated as a result of economic factors.
  • Outlook. New apartment construction will begin to deliver in 2013. In the meantime, moderate absorption will drop the vacancy rate to under 3.0% by year-end. Gains of 4.4% and 5.8% are forecast for the respective mean asking and effective rents for the year.
  • Occupancy will stabilize at about 3.0% in 2013 and 2014, as rent growth grows still stronger.

East Valley

  • The cities of the East Valley—chiefly Gilbert, Chandler, Tempe, and Mesa—have been among metro Phoenix’s most active for development over the years.
  • This high-growth, relatively affluent region—Chandler in particular—hosts major elements of Phoenix’s substantial high-tech industry base.
  • Rents are relatively high and vacancies are favorable in most East Valley submarkets.

East Valley/North Tempe

  • Reis tracks two Tempe submarkets—North Tempe and South Tempe-Ahwatukee. The former has been the busiest of the pair. South-Tempe, however, was very active in the early 1990s.
  • Tempe has been the East Valley’s most active area for condo and townhome construction. Apartment construction, while substantial, has been relatively less active. Apartment development, however, is heating up.
  • Two phases of the West Sixth development in North Tempe delivered a combined total of 375 units at W. Sixth and Maple in the latter portion of 2011.
  • Total first half 2012 North Tempe net absorption alongside no new supply was 136 units.
  • Vacancy ended second quarter at 5.0%, down 20 basis points for the quarter, down 150 year over year.
  • At $849 and $784, respective second quarter average asking and effective rates were up 0.3% and 0.6% for the period and were up 1.4% and 2.1% since year-end following gains of about 4.0% all told in 2011.
  • While no projects were under construction per report date, Reis counts 3,258 market-rate apartments in 12 projects planned or proposed.
  • The largest project to reach the planning stage is the 478-unit apartment component of the Lemon Street mixed-use development at E. Lemon Street and S. Rural Road.
  • Another 483 units are proposed for two 20-story phases of the 2.1-acre 8th and Rural mixed-use development at Rural Road and 8th Street. Huellmantel & Affiliates is the owner.
  • Other projects in planning include Fairfield Residential’s 304-unit Fairfield at
  • Tempe at 708 S. Lindon Lane.
  • Archstone has proposed a 234-unit project for 1126 N. Scottsdale Road, Tempe.
  • Outlook. Ongoing positive net absorption in the North Tempe submarket over the remainder of the year will result in a year-end vacancy of about 4.4%. Increases in average asking and effective rents are projected at 3.3% and 4.2%, respectively, for the year. Next year should be a strong one across the board.

East Valley/South Tempe-Ahwatukee

  • With no new supply arriving on line, first half 2012 net absorption was 118 units.
  • Vacancy ended the second quarter at 3.8%, down 10 basis points for the period, down 130 year-over-year.
  • Asking and effective average rents for the second quarter were $910 and $822, respectively, up 0.9% and 1.1% for the quarter following small gains the quarter before—and increases of 3.5% and 4.1% in 2011.

This submarket will host the metro area’s sole 2012 market-rate apartment

  • completion: the 224-unit San Marquis Apartments, which broke ground in June 2011 at 577 E. Baseline Road (at Rural Road), Tempe, and will complete this November. Mark-Taylor and Kitchell Development are co-developers.
  • Also underway is the 384-unit San Capella at W. Elliot Road and Hardy Drive, Tempe. A completion date is not specified. Mark Taylor is the developer.
  • Outlook. Reis expects positive net absorption over the remainder of the year to lower the vacancy rate to 3.5%. Rent growth rates of 2.8% and 3.7%, for asking and effective averages, respectively, are expected for the year.

East Valley/Chandler-Gilbert

  • Chandler-Gilbert is the largest of Reis’ several East Valley submarkets.
  • Strong population in-migration and a vibrant high-tech industry base have been major factors in this submarket over time, particularly in Chandler.
  • The Intel development underway in Chandler and data-center development along the Price Road corridor are expected to be sources of rental demand.
  • The latest construction cycle delivered 3,052 market-rate units to Chandler-Gilbert over the four-year span 2006-2009.
  • An abrupt halt followed. No projects delivered in 2010 or 2011. None will deliver in 2012.
  • Two projects started in the latter months of 2011, however, are currently underway with a combined total of 705 market-rate apartments (see below). More are in the pipeline.
  • Total first half 2012 net absorption was 55 units, down from earlier totals. The total for second quarter alone was 73 units.
  • Vacancy ended the quarter at 4.6%, down 40 basis points for the period, down 100 year-over-year.
  • Second quarter asking and effective average rents were $893 and $800, respectively, up 0.8% and 1.0% for the period, up 0.8% and 1.4% since year-end on the heels of 2011 growth rates of 1.2% and 1.4%.
  • The 383-unit Parcland Crossing, under construction at S. Alma School Road and Loop 202, Chandler, broke ground last September. The completion date was not specified.
  • The 322-unit Campanello broke ground in November at S. Arizona Avenue and Queen Creek Road. The completion date was not specified.
  • Reis reports 2,083 market-rate units in eight projects planned or proposed for this submarket.
  • Outlook. The firm expects moderate net absorption over the remainder of the year to lower the vacancy rate to 4.3%. Gains of 2.0% and 3.5% are forecast for the respective mean asking and effective rents for the year. The arrival of new supply in 2013 in excess of demand should alter the profile somewhat, but not dangerously.

East Valley/Mesa

  • Reis tracks three Mesa submarkets; East, West, and South. Development has been largely absent throughout the city in the recent term, however.
  • No construction completed citywide in 2011 or year-to-date in 2012. None was underway per the date of this report.
  • Transportation. A light rail line planned for Main Street in West Mesa could lend eventual support to new apartment (and other) development in the area.
  • More. “The city recently broke ground on Route 24, which will connect Loop 202 to the Gateway Airport by late 2013,” reports Marcus & Millichap.
  • In addition, notes this source, “The expanding pool of talent at Arizona State University’s Polytechnic campus and the rapidly expanding Gateway-Mesa
  • Airport are also major catalysts for growth.”
  • On the drawing board—Eastmark. “The overall growth has also enticed developers to begin building the infrastructure at the master-planned community, Eastmark, at the old GM Proving Grounds [in Mesa],” reports Marcus & Millichap. “The project will combine residential, hotel, and retail over 3,200 acres.”
  • Vacancies have been declining. Second quarter rates in the East Mesa, South Mesa, and West Mesa submarkets were 4.3%, 6.7%, and 7.1%, respectively.
  • Rents are rising. Respective second quarter monthly average asking prices in the submarkets were $803, $671, and $646 per unit.

West Valley

  • Generally speaking, the West Valley, including areas of west and southwest Phoenix but more distant locales as well, has been a relative new-comer to apartment development.
  • “Estimates show that approximately 70% of future housing in the Valley will be focused in the West Valley,” according to a recent Business Wire report.
  • A strong industrial development trend in this region has generated job growth in recent years, Amazon.com has undertaken a major expansion and the region claims an ample supply of land. The Westgate City Center mixed-use project in Glendale also has been a significant factor.
  • Amazon.com’s expansion in Buckeye, expected to result in the creation of thousands of jobs directly and indirectly, also is expected to boost demand for apartments in the area.
  • Development of large industrial facilities in the West Valley also could favorably impact apartment demand.
  • “The West Valley, with the creation of Westgate, its two signature sports arenas and the completion of the west Loop 101 in the past decade, is positioned to be a major economic and employment area,” stated an executive at John F. Long Properties as reported by Business Wire.

West Valley/Goodyear-Avondale-Tolleson

  • The two-year span 2009-2010 saw the delivery of 1,184 market-rate apartments in Goodyear-Avondale-Tolleson.
  • No apartment projects have finished in this submarket since the 314-unit Ashton Pointe delivered in Avondale in 2010. None were under construction per report date.
  • Net absorption for first half 2012 was 33 units following 313 last year.
  • Second quarter vacancy was 6.4%, down 20 basis points for the period, down 170 year-over-year.
  • Second quarter average asking and effective rents were $921 and $832, respectively, up 0.9% and 1.2% for the period following losses the quarter before. Respective growth rates for 2011 were 1.4% and 1.6%.
  • Four market-rate projects with a combined total of 1,556 units were in the planning-proposal pipeline as of late August.
  • Still in the planning phase is Trammell Crow Residential’s 492-unit Alexan Tolleson for a site at 99th Avenue and W. Van Buren. The project was put on hold in 2009.
  • A 340-unit project is planned for the Centerra Crossings mixed-use development at Van Buren Street and S. Estrella Parkway in Goodyear. D&G United Capital is the developer.
  • Outlook. Modest positive net absorption over the remainder of the year should shave 40 additional basis points from the vacancy rate. Respective gains of 1.6% and 2.8% are anticipated for the asking and effective average rents for the year. Notable increases in rent growth rates are expected to follow as occupancy remains flat.

West Valley/Peoria-Sun City-Surprise

  • Reis’ largest West Valley submarket is Peoria-Sun City-Surprise.
  • Over the four-year span ending with 2010, 3,299 market-rate apartment units completed construction here. No projects completed in 2011 or year-to-date in 2012; none were under construction per report date.
  • First half 2012 net absorption was counted at 111 units.
  • Vacancy closed the second quarter at 6.3%, down 30 basis points for the quarter, down 120 year-over-year.
  • The second quarter’s respective average asking and effective rents were $812 and $743, up 0.5% and 0.7% for the quarter, up 0.2% and 0.8% year-to-date. Gains of about 1.5% are indicated for both averages in 2011.
  • There are 838 units in three projects in planning and proposal stages without assigned start dates.
  • The largest is the 324-unit Castellina Village Apartments planned for N. 160th Drive and W. Lundberg Street in Surprise.
  • Outlook. Sustained net absorption at approximately the pace seen through the first half of the year should shave 50 additional basis points from the vacancy rate by year-end. The forecast calls for respective gains of 0.7% and 1.8% for the asking and effective average rents for the year.

Central Phoenix/South

  • Reis tracks two submarkets in central Phoenix—Central Phoenix South, which includes both downtown Phoenix and Sky Harbor International Airport; and Central Phoenix North, which includes the Camelback corridor.
  • South. Two small projects with a combined total of 78 units comprised the 2011 completion total.
  • First half 2012 net absorption was 172 units accompanied by no new supply.
  • Second quarter vacancy was 7.5%, down 40 basis points for the quarter, down 260 year-over-year.
  • Average asking and effective rents for the quarter were $747 and $680, respectively, up 0.7% and 0.9% for the period, up 1.4% and 2.1% year to date.
  • Ground was broken in March for developer Concord Eastridge’s $52 million, 325-unit project at N. Roosevelt and N. 4th streets in downtown Phoenix. The completion date was not available per report date. A condo project was once intended for the site.
  • Projects on the planning list in Central Phoenix South are led by The Jet, a 450-unit property intended for a site at N. 2nd and W. Van Buren streets. The project was initially expected to open in 2008.
  • Outlook. Net absorption, picking up over the remainder of the year, should close 2012 with a total of 428 units. Vacancy should drop to 6.0% by year-end. Respective gains of 2.8% and 4.1% are projected for the asking and effective average rents.

Central Phoenix/North

  • No apartment projects have delivered to the North Central Phoenix submarket since 2002.
  • Current market-rate construction consists solely of Alliance Residential’s 270-unit Broadstone on Camelback luxury project at N. 26th Avenue and W. Camelback Road (one of Alliance’s three current Phoenix area projects, as explained). Construction commenced in December. A completion date was not specified.
  • First half 2012 net absorption was positive 87 units.
  • At 10.4%, second quarter vacancy was down 10 basis points for the quarter, down 240 year over year.
  • At $636 and $594, respective second quarter asking and effective average rents were up 0.6% and 0.8% for the period and were up 1.3% and 1.9% since year-end.
  • Outlook. Net absorption activity, rising over the remainder of the year, should lower the vacancy rate to 9.8%. Respective gains of 2.2% and 3.8% are forecast for the average asking and effective rents for the year.

Other

  • The 200-unit second phase of Trillium at Deer Valley in the Deer Valley (northwest) submarket was under construction per the date of this report. A completion date was not specified.