PHOENIX-The Phoenix area has become an attractive place for multifamily buyers during the past handful of quarters, and Q2 was no different. According to Colliers International-Phoenix’s Q2 multifamily housing report, buying and selling continued to be active.
The report notes that the number of deals closed between March-June, 2011 was up more than 75% from Q1 2011, and 28% higher than levels from a year ago. The average price per unit was $52,600, with cap rates averaging 6.4%. However Colliers-Phoenix senior research analyst Pete O’Neil notes the averages are somewhat misleading, as a diverse mix of properties is trading hands.
“I’ve seen class A properties change hands at high dollar values, and have also seen properties sell at very low levels,” O’Neil tells GlobeSt.com. The types of properties trading are as diverse as the buyers coming in to acquire, he goes on to say. “We’ve had local investors, some REIT activity and out-of-market activity as well,” he adds.
The interest in Phoenix multifamily real estate isn’t sudden, but has been steadily on the rise for awhile. But the market tells a compelling story these days, given attractive pricing, rent increases and declining vacancies.
Or maybe not. During Q2, asking rents fell less than one percent, while vacancies increased to 9.4% from 9.3% in Q1. “That increase probably shouldn’t have surprised us as much as it did,” O’Neil comments. “We had a soft employment market during the second quarter, and it typically isn’t our strongest time in the year.”
O’Neil points out that the slight vacancy increase is a blip in the overall trend, especially when compared to long-term figures. Vacancy rates in Phoenix a couple of years ago hovered around 13%, he explains. O’Neil also believes that rents will continue increasing. During the Great Recession, he says, there was little demand for units, as people doubled up in living space, moving in with relatives and friends. These days, however, people are actively looking for apartments to rent – with a limited supply coming online.
“We’re in a market in which delivery of 5,000 units a couple of years ago was common,” O’Neil remarks. “Now we’re delivering a tenth of that.”
Given all the improving fundamentals, O’Neil says he can see why Phoenix remains an attractive market for multifamily asset buyers. “Prices are down about 50% from their peak. That, with tightening vacancies, is a good story for buyers to hear,” he says.
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