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PHOENIX-Out-of-state investors’ interest in the Valley of the Sun is increasing, creating a competitive environment that will keep prices on an upward trend over the next year as market fundamentals improve, according to Marcus & Millichap’s recently released Apartment Research Report.

“Recent sales statistics show a growing presence of out-of-state buyers, and these investors, many from California, account for a large share of purchases recorded this year,” says David A. Wetta, regional manager of the firm’s Phoenix office. “The Phoenixapartment market is in the beginning stages of a recovery and we expect both job and population growth to accelerate going into 2005.”

Out-of-state investment dollars are being lured by the Valley’s strengthening market conditions and relative affordability. California buyers alone account for more than 50% of the transactions recorded so far this year, a trend that’s expected to continue.

The median price per unit in the Phoenix area will near $43,000 by yearend while the median price in the less-than-50-unit sector has increased to $46,000 per unit so far this year. Properties in well-known neighborhoods, including the Camelback Corridor, surpass $50,000 per unit.

The Phoenix economy is regaining its position as a leading growth market. The Valley’s employment base is on pace to expand by 3.2% this year, an amount double the expected national average of 1.6%. Employment prospects continue to bring new residents to the Valley, with the metro area’s population expected to hit 3.5 million this year, a 1.7% gain in the last 12 months.

An improving job market, decreasing new supply and continuing in-migration will mitigate the impact of renters becoming homeowners. Vacancy is expected to decrease to 9.2% by yearend. The East Valley continues to outperform the West Valley. The ever-popular North Scottsdale/Paradise Valley submarket, where more high-end product is rising, is registering a vacancy rate below the metro average, with the expectation being it will dip to 8.2% by yearend.

This year, developers will add 3,900 units, down from 4,800 units in 2003. However, improvement in vacancy and rents over the next 12 to 18 months will likely encourage developers to fill the construction pipeline. Builders already are scheduled to break ground on another 420 units by midyear 2005. An additional 3,200 units are in various phases of the design review process, of which about 900 are planned for the West Valley.

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