The Phoenix multifamily market held up better than most others during 2020. The Valley’s impressive performance was partly due to economic diversification over the past decade that resulted in less-severe job losses than other regions around the country and low residential inventory that kept apartment vacancies low. Phoenix’s lower cost of living also made federal and state stimulus go a long way and helped attract new residents from more expensive West Coast markets.
Like the rest of the country, rents went into freefall during the onset of the pandemic. But in Phoenix, daily asking rents were quick to recover. Rents ended 2020 about 4% above January rent levels. Despite the impressive growth, the market still lost out on rent gains that would have occurred during a “normal” year.
The suburbs were resilient and outperformed urban neighborhoods. Rents in the suburbs recovered six months ahead of urban submarkets. The trend is emblematic of the shift in preference among renters in Phoenix who sought out affordability in the suburbs over more expensive apartments in dense city centers. Due to the change, property managers in urban communities offered generous concession packages to lure renters, while suburban apartments did not rely on incentives.
Despite a slow spring leasing season, demand rebounded in the third quarter once the statewide stay-at-home order ended and stimulus checks were disbursed. On an annual basis, demand kept pace with a near record level of completions during 2020, putting slight downward pressure on vacancies. The supply wave isn’t over, and the market is on pace to receive another year of record-high completions.
The capital markets scene started the year strong in Phoenix, but activity tumbled from March to June. Difficulty underwriting, the inability to travel and physically tour properties and uncertainties surrounding the pandemic’s length and extent caused a temporary slowdown in deal activity. But investors returned in the third quarter, and momentum built in the fourth quarter, when transaction volume climbed to an all-time high.
Overall, investors still see value in the Phoenix market, and the outlook is favorable. There are still many uncertainties surrounding new stimulus, renter protections and the end of eviction moratoriums. Additionally, unrelenting rent growth and a construction pipeline limited to top-tier apartments have made Phoenix unaffordable to renters facing economic hardship due to the pandemic. The Valley’s long-term growth drivers are strong. A comparatively lower cost of living, and the adoption of work from home policies, will continue to attract renters from expensive and dense markets and fuel demand for Phoenix housing.
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