A growing population has brought a higher cost of living in Phoenix. And that growth trend is showing little sign of slowing down, with a new report suggesting that as the population swells, the Phoenix metro could draw more interest from out-of-state companies looking to set up shop in the Valley as well.
A study from New York-based Moody’s Analytics found that an inbound trend of people moving to Phoenix and across the state is expected to continue. Moody’s Thomas LaSalvia, who authored the report, said that, historically, the big draw to the Valley was its affordability. However, LaSalvia found that Phoenix’s rent-to-income ratio is up 7% from the start of the Covid-19 pandemic to nearly 27% as of Q1 2022.
“That corresponds to the 30-plus percent rent gains that we’ve seen in Phoenix over the last couple of years in aggregate,” LaSalvia said. “One of the concerns is not only a deceleration in prices for housing but maybe a slight correction in the 5-10% range. That’s very possible if demand dries up enough.”
LaSalvia said the influx of people to the Valley will bring new skills to the local workforce, drawing the attention of out-of-state companies who want to be part of Phoenix. More companies and jobs in the area would prompt more construction, a larger supply of homes and increased incomes.
Moody’s study looks at real estate trends
“If you get really good influx of skill and diversity into a metropolitan area and if businesses see that they also feel Phoenix is an area where they can build from, gain productivity and find a good labor force, they would move there,” he said. “And this kind of self-reinforcing mechanism would occur, which would prompt further growth in the Phoenix area.
“To me, that’s the most intriguing thing about Phoenix right now — which direction does it go in this fork in the road.”
The Moody’s report found that Arizona’s population grew by nearly 100,000 people between June 2020 and June 2021. While nearly a third of those inbound people moved to the state for retirement, the move for jobs, lifestyle and family factored into the shift. Of the state’s moving population, 54.1% were inbound, while 45.9% were outbound.
That growing workforce will leave its mark on rent for commercial properties as well. Moody’s expects Phoenix’s retail market to remain steady, banking on tourists and retirees to drive that market by patronizing local shops. For the office and industrial markets, Moody’s expects respective rent growth of 2% and 4.6% through 2025.
Companies making office leasing decisions
Despite many companies electing to go to a hybrid work model because of the Covid-19 pandemic, LaSalvia said physical occupancy in the office is higher in Phoenix compared to denser urban areas like San Francisco and New York.
“That is showing management, those making leasing decisions, ‘we got to hold onto our space a bit longer,'” he said. “You’re seeing that greater willingness to go to the office in some of these areas where it traditionally hasn’t taken an hour and half to get to the office.”
LaSalvia said the logistics and industrial markets could continue to drive investment long-term in Phoenix provided that quality infrastructure is in place to support the growth.
“There’s potential for a little bit of overexuberance or too much speculative supply out there, but over the long haul, [logistics] is going to be one of Phoenix’s greatest industries,” he said.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.