ResalesPhoenix Yields Free Rent, $1 Move-In Deals
Too many apartments, too few jobs and cheap mortgages that make home buying affordable, have put a triple-whammy on the rental market in Arizona"s capital city. That"s good news for renters -- for now.
"Over the past year, the Phoenix apartment market has experienced rising vacancy and stalled rent growth," said David A. Wetta, senior vice president and regional manager of Marcus & Millichap"s Phoenix office. The Encino, CA-based company is a real estate investment brokerage.
"However, long-term growth potential and favorable financing have kept investors" interest piqued, particularly for older infill properties," Wetta added.
In June, Phoenix rents declined for the first time since the early 1990s. The $707 average in June slipped from $709 in March this year, according to Realfacts a Novato, CA multifamily housing researcher.
Carole S. Latham, Realfacts CEO says the downturn follows three quarters of multifamily market softness that has also pushed occupancy rates down to 90.5 percent in the second quarter this year. That"s down from 90.8 percent in the first quarter and down from 93.9 percent in the second quarter of 2001.
"Declining occupancy is generally viewed as a predictor of future declines in rents. That prediction is reinforced by the high level of concessions in the market," Latham said.
Approximately 75 to 90 percent of all landlords are combating the higher vacancy rates by offering as much as four months of free rent on long leases and move-in specials as low as $1, according to Terry Feinberg, executive vice president of the Arizona Multihousing Association.
"While helping to keep properties full, the net effect is a reduction in effective rents," Feinberg said.
That could change as the flow of new apartments in the pipeline slows. In 1999, 9,228 units were completed in the Phoenix Metro area; 8,328 in 2000; 7,968 in 2001; an estimated 6,718 are due by the end of this year and 6,100 are projected for 2003, Feingberg said.
Experts on the Phoenix economy say as the economy continues to recover, more jobs are created, the number of new apartments coming on line slows and the supply better matches demand, mortgage rates will also stop their fall, forcing more potential homeowners to remain in rental housing.
"In April 2002, the number of homes sold in Greater Phoenix hit an all-time high of 6,790 in a single month. Low interest rates and a great deal of new construction in 2001 and early 2002 set the stage for this flight to home ownership. In turn, in a textbook example of market forces at work, that depressed the rental market. However, recent stories ... suggest that home sales are now dropping. The loss for new home builders may be a gain for apartment investors," Latham said.
Tourism, hurt by 9/11 and the high-technology downturn have blistered the Phoenix economy and that"s evident in the job market. That won"t change until 2003, when the economy is forecast to add more than 50,000 jobs, according to Encino, CA-based Marcus & Millichap, a real estate investment brokerage.
"Rents will remain flat throughout most of the valley over the next six months; however, improving market conditions in 2003 will lift rent growth to 2 percent over the next year," Marcus & Millichap reported.
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