Tuesday, April 08 2014
Phoenix Middle-Market Apartments Gain Some Pricing Power
Annual rent growth in Phoenix apartments came in at 2.8% as of mid-2013. That’s a decent figure, still slightly below the national norm but certainly the best performance seen in the metro over the course of the past couple of years.
What may come as a surprise to some is that Phoenix’s rent growth leaders right now are mostly middle-market communities, particularly the metro’s big block of 1980s-generation properties. Effective rents for new leases in Phoenix’s 1980s-vintage stock climbed 3.8% during the past year, compared to growth of 2.7% in the projects from the 1990s and 1.7% in the developments built since 2000.
Occupancy in the middle-market apartment stock across Phoenix hasn’t recovered entirely, as the rate stood at just 92.9% as of 2Q. However, there are pockets where this product niche is already essentially full (occupancy of 95% or better), notably Deer Valley, Chandler, North Glendale, South Scottsdale and Gilbert. It’s in those submarkets where rent growth for 1980s-era properties is tending to show lots of momentum, with pricing up about 8% in Deer Valley, about 7% in Gilbert, and about 5% in South Scottsdale, for example.
Monthly rents for middle-market apartments in Phoenix average between $600 and $700, so most residents of these properties don’t earn enough for home purchase to be a realistic option right away. Thus, as long as Phoenix can continue to generate jobs at a pace similar to the levels seen now – annual growth of some 53,000 positions, or 3.1% expansion – demand for middle-market product should remain strong enough to continue to push rent growth in the sector at levels above the norm for all properties.