Rent Growth Spikes, Fueling Investment Activity

Transcription

1 Research & Forecast Report TUCSON METRO AREA MULTIFAMILY 217 Rent Growth Spikes, Fueling Investment Activity Key Takeaways > > The Tucson multifamily market showed mixed signals in the second quarter of 217. While vacancies ticked up slightly, rents grew at a significant pace. New construction slowed, easing the potential competitive impact from new development. > > Apartment vacancy rose 3 basis points to reach 6.8 percent in the second quarter, identical to the figure from one year earlier. has remained within a tight range between 6 percent and 7 percent for the past 18 months. > > In the second quarter, rents reached $79 per month. This was a 5 percent annual increase, the largest year-over-year rise this market has recorded in recent years. > > Sales velocity in the second quarter closely tracked activity levels from the first quarter. The median price per square foot accelerated, and cap rates compressed slightly, signaling a strengthening investor market to close out the year. Tucson Metro Area Multifamily Market Following a strong first few months of 217, conditions in the Tucson multifamily market were somewhat mixed during the second quarter of the year, a fairly common occurrence during the summer months. inched higher, but asking rents grew at an aggressive pace and construction activity continued to slow. The significant drop in new construction is insulating the market from any fluctuations in renter demand. Net absorption has totaled more than 1, units during the past 12 months, but there have been a few quarters of seasonal volatility. The strong rent growth that is being recorded is an indicator of a healthy market going forward. Market Indicators Relative to prior period Rents Transaction Activity Price Per Unit Cap Rates Summary Statistics Tucson Market Rate 6.8% Change from 216 (bps) Per Month $79 Change from % Median Sales Price Per Unit (YTD) Market 217 $44,5 Average Cap Rate 6.4% Market 216

2 Tucson Metro Area Multifamily Market (continued) Healthy property performance is supporting the local investment market. The number of properties that changed hands in the first half of 217 outpaced the total from the same period last year by more than 4 percent. This marked the most active six-month period in Tucson in more than a decade. With buyers acting more aggressively, prices are pushing higher. The median price spiked to more than $55, per unit during the second quarter, while cap rates remained in the mid-6 percent range. Recent Transactions in the Market MULTIFAMILY SALES ACTIVITY Property Name Street Address Units Sales Price Price per Unit Villas at San Dorado 173 N Oracle Rd., Tucson 274 $5,55, $184,489 Junction at Iron Horse 54 E 9th St., Tucson 76 $19,32,221 $254,213 Brookwood Apartment Homes 21 S Kolb Rd., Tucson 272 $13,, $47,794 SUBMARKET STATISTICS Submarket Name 2Q 217 2Q 216 2Q 217 2Q 216 Annual Rent Change (%) Northeast Tucson 5.2% 4.4% $888 $ % Catalina Foothills 5.3% 4.9% $772 $72 1.% Northwest Tucson % $882 $82 7. East Tucson 5.9% 6. $677 $657 3.% Southeast Tucson 6.3% 17. $532 $ % Flowing Wells $62 $ % Tucson Mountain Foothills 6.8% 6. $812 $77 5. South Tucson/Airport 6.9% 8.% $554 $538 3.% North Central Tucson 7.3% 6.7% $638 $ % Pantano/Lakeside 7.9% 7.% $657 $632 4.% Southwest Tucson 8.3% 6.7% $661 $618 7.% South Central Tucson 8.9% 8. $612 $59 3.7% University 9.% 15.7% $781 $ Oro Valley/Catalina 9.1% 5.1% $945 $ % 2 Tucson Metro Area Research & Forecast Report 217 Multifamily Colliers International

3 Employment: > > Employment in the Greater Tucson market has been inconsistent over the past few quarters. Year over year, employment has declined about.2 percent, a net loss of 8 jobs. One of the largest sources of employment and a major driver of the Tucson economy is the government sector, which recorded net job losses in 216 and has contracted slightly during the first half of this year. > > The leisure and hospitality sector has been consistently adding jobs since 214, averaging 1,9 new jobs per year. During the past 12 months, approximately 2, workers were added in this sector, the most net new jobs in any given industry in the Tucson metro area. Leisure and hospitality employment will likely receive a boost with the third-quarter opening of the Marriott AC Hotel in Downtown Tucson. > > The pace of employment growth in the financial activities sector has surpassed almost every sector in Tucson over the past year. This sector grew at a pace of about 4.1 percent and added 7 net new jobs. Construction and Permitting: > > Multifamily construction activity in Tucson is modest, but has accelerated in the past few months. Two market-rate projects have broken ground, one in South Tucson totaling 122 units, and the other in Casa Adobes, totaling 24 units. > > Over the past five years new construction has averaged 228 units per quarter. Fewer than 5 units were delivered in the first half of 217, compared to approximately 35 units in the same period last year. > > After a slowdown in the first few months of the year, permitting activity dropped off even further during the second quarter. Fewer than 3 permits were pulled in the second quarter, one of the lowest quarterly permitting totals on record. : > > After a brief decline during the first three months of 217, vacancy in Tucson rose to 6.8 percent in the second quarter. This is an uptick of 3 basis points from the previous quarter, and the rate is identical to where the figure was at this point in 216. > > The northern portions of the market continue to post some of the tightest vacancy figures in Tucson. Rates in Northwest Tucson, Catalina Foothills, and Northeast Tucson submarkets all remain in the low- to mid-5 percent range. > > Despite a 13 basis point year-over-year increase, Class A vacancy is just 6.1 percent as of the second quarter, the lowest figure among the property classes. Renter demand for Class A units is generally quite strong; during the past five years, vacancy in the top tier of the rental market has averaged 6.7 percent. Employment Overview Year-over-Year Jobs Added (s) Number of Jobs Annual Change Construction Trends: By Submarket Units Quarterly Trends Rate % 1. 1.% 9. 9.% 8. 8.% 7. 7.% 6. 6.% Completions 214-present Under Construction % 3. 3.% 2. 2.% 1. 1.%..% % % Year-over-Year Employment Change 17 3 Tucson Metro Area Research & Forecast Report 217 Multifamily Colliers International

4 Rents: > > The Tucson multifamily market remains healthy with asking rents advancing 2.3 percent from the first quarter figure to $79 per month. Rents have spiked by more than 5 percent in the past year, one of the strongest annual increases on record. > > Gains were strongest in the Catalina Foothills submarket, where rents are routinely higher than the metro-wide average. Asking rents grew more than 5 percent from the first quarter to reach $772 per month. This quarterly growth fueled a 1 percent annual rent increase in the submarket. > > Rents are rising across all property classes. The most robust growth occurred in Class B buildings, with average rates reaching $697 per month, an increase of approximately 5.5 percent. Quarterly Rent Trends Asking Rent per Month $72 $7 $68 $66 $64 $62 $6 $58 $.98 $.96 $.94 $.92 $.9 $.88 $.86 $.84 Asking Rent per SF Investment Trends: > > Transaction activity in the second quarter was nearly identical to levels recorded in the first quarter. Sales velocity in the first half of 217 has spiked by more than 4 percent when compared to levels from the first half of last year, with sales in the $5 million - $1 million range recording the most significant increase. > > Prices continue on an upward trajectory. The median price reached $55,9 per unit in the second quarter, 7 percent higher than the median price in the first quarter. Year to date, the median price has reached $44,5 per unit. > > Cap rates inched down 1 basis points during the second quarter, reaching an average of 6.4 percent. This cap rate is inline with the 216 average cap rate. Investment Trends Median Price per Unit (s) $6 $5 $4 $3 $2 $1 1% 9% 8% 7% Average Cap Rate $ 4% Price per Unit Cap Rate 4 Tucson Metro Area Research & Forecast Report 217 Multifamily Colliers International

5 Outlook: Supply and demand are forecast to remain closely aligned in the Tucson metro between now and the end of the year. The pace of development is slowing after annual inventory growth in the percent range from 212 to 216. Completions for 217 are forecast to reach only about 4 units, and multifamily permitting is slowing dramatically, suggesting minimal supply-side pressures in 218 as well. Preliminary indications suggest that renter demand for units could slow a bit as well. Cuts in the public sector have had a negative impact on the overall job market, even as a few prominent employers in the area have announced payroll expansion plans. With vacancy forecast to remain near current ranges, owners are forecast to continue to implement steady rent increases. Sales of apartments got off to a very strong start to 217, and the momentum in the local investment market is likely to be sustained in the second half of the year. Activity is being fueled by both prospective buyers and existing owners seeing opportunity in the current market conditions. Buyers are acquiring properties in response to tight vacancies, rising rents and minimal competitive threat from new development. At the same time, some owners are taking note of prices that have reached a 1-year high and are listing properties to capture profits. Cap rates have inched lower during the past few years, and appear to be leveling off in the mid-6 percent range. Employment Forecast Rent Forecast 8, 2.% $74 Net Employment Change 6, 4, 2, 1. 1.%..% Year-over-Year Change Average Aksing Rent $72 $7 $68 $66 $64 $62 4% 3% 2% 1% % Year-over-Year Rent Change -2, -. $6-1% Construction and Permitting Forecast 1,4 Jobs Gained/Lost Annual Change * Year End Forecast Forecast 11% * Year End Forecast Annual Change Permits/Units 1,2 1, Rate 1% 9% 8% 7% MF Permits Completions * Year End Forecast * Year End Forecast FOR MORE INFORMATION Bob Mulhern Senior Managing Director Greater Phoenix Bob.Mulhern@colliers.com Jim Keeley SIOR Founding Partner Scottsdale Office Jim.Keeley@colliers.com Pete O Neil Research Director Greater Phoenix Pete.ONeil@colliers.com Brooke Hinkel Research Associate Greater Phoenix Brooke.Hinkel@colliers.com Copyright 217 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International Greater Phoenix 239 E. Camelback Road, Suite 1 Phoenix, AZ colliers.com/greaterphoenix 5 North American Research & Forecast Report 214 Office Market Outlook Colliers International