Following a record-high year for multifamily sales volume in 2018, Phoenix apartment sales reached a new peak in the first quarter of 2019.
Nearly $2.1 billion transacted in the first quarter, as investors flocked to Phoenix looking for yields and solid fundamentals that support generous cash flow. Sales volume increased 33% over the quarter and surged 50% year-over-year. If the market maintains this momentum, sales volume will surpass the $8 billion mark, far outpacing the $6.4 billion in sales last year.
Private and institutional investors account for the bulk of buyers in Phoenix. Over the last few years, the metropolitan area has increasingly piqued interest among out-of-state and international investors searching for higher-yields; nearly one-third of all transactions sold to California-based investors during the quarter. Rising costs and capitalization rate compression in primary and coastal markets is forcing buyers to widen their search to dynamic secondary markets for higher returns. In Phoenix, average cap rates compressed 20 basis points over the last year to 5.3%, yet still boasts a more than 100-basis point spread over California cap rates.
Investors who put Phoenix on the back burner during the downturn are giving the market another much-deserved look. Phoenix’s robust and broad-based employment growth is supporting the market’s long-term stability and is shifting it away from its “boom-and-bust” tendency to a more sustainable market. The perception of lower economic volatility, in addition to the most substantial rent growth and second highest level of net migration in the country, is enough to convince investors that Phoenix will continue to achieve healthy levels of growth and yield attractive returns.
After a seven-year hiatus, Camden Property Trust returned to Phoenix as the buyer in the largest deal of the first quarter. The Houston-based REIT purchased the 316-unit Camden Old Town Scottsdale, a 4-Star apartment complex in Scottsdale, for $97 million, or about $307,000 per unit. Sale prices vary significantly by location and product quality. In the Old Town submarket, the average market sales price per unit increased 10% year-over-year to more than $211,000. The property is located in a high-performing submarket with a large concentration of young professionals drawn to the area’s walkable restaurants, retail and nightlife.
Bascom Arizona Ventures, a subsidiary of California-based private equity firm The Bascom Group, was the buyer in another notable multifamily sale in February. The firm purchasd the 423-unit Tempo at McClintock Station in Tempe for $89.2 million, or approximately $210,000 per unit. The Class A, mid-rise property was completed in 2017 and 68% occupied at the time of sale.
The outlook for Phoenix’s multifamily market is positive. Demand is expected to outpace a relatively conservative construction pipeline. Net migration and healthy employment growth is fueling demand for apartments. Meanwhile, rising home prices and a moderate single-family construction is also supporting the renter pool. These trends, combined with a year-over-year increase in multifamily listings, will continue to draw attention from investors searching for returns and bolster multifamily investment volume in Phoenix this year.
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