Trend Report September: Storm Cloud Watch for Multifamily
Watching storm clouds circling the multifamily market is like predicting where the summer monsoons will land first in Tucson.
The number of residential properties sold in July across Greater Tucson declined by 24.9% while inventory increased 49.6% during the same period, according to the Tucson Association of Realtors.
July commercial sales volume remained strong, with a 45% increase for the month and a 109% increase year-over-year.
Regardless of whether the US economy is in a recession or not, the multifamily market forecast is strong despite outside warnings. Low supply and red-hot demand have created a perfect storm for double-digit year-over-year rental growth that has no immediate signs of letting up.
Warning signs of quantitative tightening in supply due to outside forces may be a storm brewing, as the Multifamily Team of Institutional Property Advisors at Marcus & Millichap, Clint Wadlund, Hamid Panahi and Art Wadlund share their expertise with market-rate multifamily communities over 100 units.
The rental vacancy in Tucson is hovering around 5%, with new deliveries in the negative, and rent growth up 18.1% for the year. It leaves little wonder as to why Tucson’s multifamily sector has held steady throughout the first half of the year.
But is it sustainable?
As the multifamily team of Allan Mendelsberg and Conrad Martinez at Cushman & Wakefield | PICOR explains, Tucson is years behind in rental inventory supply so is in a strong position to withstand any major storms for investors.
Jeff Casper, specialist in multifamily investment and First Vice President at CBRE, concurs that Tucson saw the 15th highest increase for rents of all U.S. metros, yet is still one of the most affordable metro areas compared to household income when compared to other cities.
We welcome two wonderful new contributors to this issue, Thomas Brophy, National Director of Multifamily Research and Analytics at Colliers International and John Kobierowski, President and CEO of ABI Multifamily. They bring not only Phoenix statistics to our multifamily trends’ discussion, but also a contextual perspective of Arizona.
Wanting a well-rounded view of all types of multifamily, we also welcome first- time contributor Mark Biery, JD, CCIM, specialist in Senior Housing Brokerage at Berkshire Hathaway in Tucson. Senior housing, large and small, has experienced incredible challenges during the pandemic.
Will White, who heads up Land Advisors Organization office in Tucson, is a primary broker for the master-planned communities in Pima County and has contributed an overview of the Build for Rent (BFRs) market, explaining the “game changer” it has become to the rental market over the past 24 months.
Addressing the housing shortage, Tucson Mayor and Council approved an Auxiliary Dwelling Units (ADU) ordinance in January to bring more housing options. Acacia Dupierre and Loran Shamis of Tucson’s Planning Department contributed an update on this new program designed to build more rental casitas. The successful program seems to be a Tucson trend catching on.
Michael Becherer, AIA, with Swaim Associates identifies how the trends in downtown development have created a new problem – land shortage for new projects. Michael encourages more urban overlay districts, like what was done along Sunshine Mile, for other major transit routes to bring more creative mixed use / multifamily / multimodal developments outside of the downtown area.
A strong economy and population growth is a perfect storm for multifamily growth.
We also welcome first time contributor, Ross McCallister, Principal at MC Companies, and a 40-year plus real estate veteran. MC Companies is committed to the integration of EV charging stations at their properties to serve renters.
The City voted August 23rd on a new ordinance for EV charger station requirements affecting multifamily, office and retail new construction. The Tucson Chamber of Commerce and Arizona Multihousing Association express concerns over increasing housing costs and stress the need for flexibility in achieving balance with affordable housing.
We’d like to thank Jim Tofel of Tofel Construction for his professional insight into the multifamily construction pipeline in Southern Arizona. Jim assures us that even if inflation doesn’t return to normal levels, the pace of local development isn’t likely to slow down anytime soon.
Thanks to all our contributors and our Trend report team: Patti van Leer, Michael Rossmann, Melissa Vucijevic and Jack Paddock for making this issue possible. We look forward to bringing you October’s Office Trends next month!
And thank you to our readers for your continued support. As always, we appreciate your feedback and welcome your comments.
Karen Schutte,
Managing Editor