Demand Continues for B and C Multifamily

PHOENIX—The Phoenix multifamily sector continues to mirror many national trends. Namely, rents are rising, vacancy is dropping and it seems large-scale, luxury apartment communities are coming out of the ground in every direction.  

Now, as rental demand remains steady and investors are actively trading assets at a healthy clip, unique trends are emerging across the Valley's multifamily sector. One in particular is the growing demand for mid-size, class-B and C multifamily properties.

According to CBRE Research, in Q2 2016 there was nearly a 14% increase in multifamily property sales volume for communities comprised of 15 to 100 units year-over-year. Additionally, average rental rates in that property space continue to improve substantially year over year, reporting a 7.9% increase in effective rents Valley-wide. South Mesa average rents increased 9.29% followed by North Tempe with an 8.37% increase, respectively.

“Investment activity in mid-size B and C class apartment communities continues to grow, and that is being directly driven by renter demand,” said Brian Smuckler, senior vice president with CBRE's Phoenix office. “The media tends to focus on the large-scale, luxury product, but there's a story happening with smaller scale properties that's really compelling. The improved fundamentals we're seeing–both terms of dropping vacancy and improved rental rates–are the direct result of pent-up investor demand for the limited inventory of value-add opportunities in infill locations that offer renters unique environments that large, institutional assets do not.”

He says this trend has been more prevalent in markets such as Southern California, Denver and Seattle but has been quietly making headway in the Valley during the last 24 to 36 months.

“It's a paradigm shift for the multifamily market, and that shift is being led by sophisticated investors,” said Jeff Seaman, CBRE senior vice president. “These are folks who recognize the huge opportunities that can come with a little heavy lifting in the form of repositioning assets.”

Partners Smuckler and Seaman are multifamily specialists and co-team leads for the firm's multifamily investment properties group in Arizona. They expect investor demand to continue in this sector in the near term, pointing to historical sales data to mark the trend.

“In 2015, we closed 36 transactions for a sales volume of $75 million, and that was nearly 20% of the market of class-B and C multifamily sales,” said Smuckler. “Year-to-date, we've completed 28 transactions worth more than $64 million and activity shows no signs of slowing.”

Seaman concurs, saying as renters continue to flock to boutique-repositioned communities, there will continue to be demand for smaller scale development and redevelopment. He also points out the overall benefits to the community at large in the form of more affordable housing options that one might find in a large-scale, class-A property.

“Dropping vacancy in the mid-sized multifamily sector is really underpinned by the strong demand for more affordable, urban-centric housing, particularly in key infill areas,” Seaman tells GlobeSt.com. “When you compare repositioned B and C class properties to newly constructed luxury class-A assets, owners are able to offer A finishes and upgrades at a fraction of the rent of new construction. Tenants can live in their desired neighborhoods at substantially lower costs. And while they may be giving up some of the on-site amenities offered at large-scale communities, they still have the walkability to neighborhood amenities.”

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.

PHOENIX—The Phoenix multifamily sector continues to mirror many national trends. Namely, rents are rising, vacancy is dropping and it seems large-scale, luxury apartment communities are coming out of the ground in every direction.  

Now, as rental demand remains steady and investors are actively trading assets at a healthy clip, unique trends are emerging across the Valley's multifamily sector. One in particular is the growing demand for mid-size, class-B and C multifamily properties.

According to CBRE Research, in Q2 2016 there was nearly a 14% increase in multifamily property sales volume for communities comprised of 15 to 100 units year-over-year. Additionally, average rental rates in that property space continue to improve substantially year over year, reporting a 7.9% increase in effective rents Valley-wide. South Mesa average rents increased 9.29% followed by North Tempe with an 8.37% increase, respectively.

“Investment activity in mid-size B and C class apartment communities continues to grow, and that is being directly driven by renter demand,” said Brian Smuckler, senior vice president with CBRE's Phoenix office. “The media tends to focus on the large-scale, luxury product, but there's a story happening with smaller scale properties that's really compelling. The improved fundamentals we're seeing–both terms of dropping vacancy and improved rental rates–are the direct result of pent-up investor demand for the limited inventory of value-add opportunities in infill locations that offer renters unique environments that large, institutional assets do not.”

He says this trend has been more prevalent in markets such as Southern California, Denver and Seattle but has been quietly making headway in the Valley during the last 24 to 36 months.

“It's a paradigm shift for the multifamily market, and that shift is being led by sophisticated investors,” said Jeff Seaman, CBRE senior vice president. “These are folks who recognize the huge opportunities that can come with a little heavy lifting in the form of repositioning assets.”

Partners Smuckler and Seaman are multifamily specialists and co-team leads for the firm's multifamily investment properties group in Arizona. They expect investor demand to continue in this sector in the near term, pointing to historical sales data to mark the trend.

“In 2015, we closed 36 transactions for a sales volume of $75 million, and that was nearly 20% of the market of class-B and C multifamily sales,” said Smuckler. “Year-to-date, we've completed 28 transactions worth more than $64 million and activity shows no signs of slowing.”

Seaman concurs, saying as renters continue to flock to boutique-repositioned communities, there will continue to be demand for smaller scale development and redevelopment. He also points out the overall benefits to the community at large in the form of more affordable housing options that one might find in a large-scale, class-A property.

“Dropping vacancy in the mid-sized multifamily sector is really underpinned by the strong demand for more affordable, urban-centric housing, particularly in key infill areas,” Seaman tells GlobeSt.com. “When you compare repositioned B and C class properties to newly constructed luxury class-A assets, owners are able to offer A finishes and upgrades at a fraction of the rent of new construction. Tenants can live in their desired neighborhoods at substantially lower costs. And while they may be giving up some of the on-site amenities offered at large-scale communities, they still have the walkability to neighborhood amenities.”

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.