As an Arizona native, I’ve seen the greater Phoenix area change drastically over the past four decades. When I was a kid, I remember riding in my parents’ car to Rawhide, the replica western town complete with gun-fighting cowboys and stagecoach rides. We would drive the long two-lane rolling road through the desert until we arrived at the western wonderland located in, what felt like, the middle of nowhere. No longer a desolate destination, today that area is the affluent North Scottsdale neighborhood, full of restaurants, shops, and houses that connect it to the greater Phoenix metropolis.
Longtime Phoenicians have endless examples like this one of how the Valley of the Sun has morphed over the years, and based on recent trends, another growth spurt is underway, making Phoenix a top market for commercial real estate investors. So, what’s driving the economy and commercial real estate in Phoenix? Read on for our market analysis.
According the US Census Bureau, from July 2020 to July 2021, Arizona’s population has increased by 98,330 people, putting the state at number three for numeric growth. A This is not a new trend. From 2010 to 2019, Arizona’s population increased by 886,429 people, the seventh largest increase nationwide. B Among the reasons people are moving to Phoenix is career opportunity.
The Greater Phoenix market has added 128,000 jobs, or 6.1 percent, year over year through Q3. Phoenix is also catching the eye of CEOs nationwide. According to the Greater Phoenix Economic Council, 45 companies relocated to metropolitan Phoenix last fiscal year resulting in $13 billion in capital investment. C This pace is expected to continue over the next decade with Arizona projected to have an annual job growth of 1.6% compared to the projected national job growth of 0.4 percent annually. D
What effect does this growth have on multifamily and hospitality industries in Phoenix?
Over the past twelve months, rents in the Greater Phoenix market have increased 27.3 percent, averaging $1,543, and at the end of third quarter, vacancy rates hit an all-time low of 4.0 percent. Investors have taken notice of the record-setting pace of the Phoenix multifamily market. By the end of the third quarter, sales volume in the Phoenix market has already outpaced all of 2020. Demand is also impacting prices. Year to date through the third quarter, the average price per unit increased 20 percent to $204,500, and cap rates are averaging four percent. E
The hospitality industry, arguably, has been the pandemic’s hardest-hit asset class, however, thanks to Phoenix’s established leisure market and its proximity to other large feeder markets, the city has continued to be a top-performing market. Not only did the Phoenix market outpace national recovery trends, it set new records for ADR and RevPAR each month from June through October 2021. F Phoenix is also scheduled to host several national events in the next few years including the 2023 Super Bowl, the 2024 Men’s Final Four, and the 2026 Women’s Final Four, further driving demand and RevPAR in the market.
PEG Companies identified Phoenix as an emerging market years ago and most recently opened the Staybridge Suites Phoenix-Biltmore property in August 2019. Despite still being in a ramp-up period when the pandemic hit, the Staybridge Suites has been a top performer. PEG is also taking part in reshaping Phoenix’s future with several projects under development including a SpringHill Suites across from ASU’s SkySong Center, a Moxy Hotel in Downtown Phoenix and a mixed-use development in Old Town Scottsdale including an Autograph Hotel, multifamily complex and a restaurant.
While I have very fond memories of the way Phoenix used to be, I am excited to watch as the Valley of the Sun continues grow and become a more modern and beautiful version of itself and even more excited to be a small part of that change.