Experts say Valley rental market poised for growth

June 12, 2012

The Valley’s housing market is starting to pick back up. But some experts say one part of that market is poised for a big comeback in the next few years, especially in parts of Phoenix and the East Valley. KJZZ’s Mark Brodie reports.

MARK BRODIE: So, there’s this theory, which says people, especially younger people, saw what happened during the housing crisis, and have decided to rent, rather than buy. Pete O’Neil with Colliers International factors this theory of “renters by choice” into his forecasts of the Valley’s multi-family market. He says that sector is improving more quickly than others.

New apartment construction in Phoenix Alliance Residential is building 270 apartment units at 26th St. and Camelback Rd. (Photo by Mark Brodie - KJZZ)

PETE O'NEIL: I think right now, there are people who have survived this last cycle, who’ve gone through it, and see that home ownership can be an obligation. And, I think there’s a little more skepticism in the market about the nature of housing.

BRODIE: O’Neil says there are around 3,000 new apartment units under construction in the Phoenix area. Many are high-end -- think granite countertops, stainless steel appliances and of course, location, location, location.

ROBERT HICKS: We believe it’s probably right now the best location that we can build on today.

BRODIE: Robert Hicks is a Vice President with Alliance Residential in Phoenix. He doesn’t have to look far for evidence of new apartment units -- literally. One of his company’s developments is a couple blocks from his office in the Camelback Corridor.

HICKS: But today, we saw an opportunity to put an A+, top line community into the Valley, that will attract renters by choice that do want to live in the Arcadia and Biltmore area, and have the high end finishes.

BRODIE: Multi-family experts generally agree the industry hit bottom in 2009, and the first few months of 2010. But, they say, it’s been picking up since then. Now, apartment occupancy in the Valley is estimated somewhere in the mid 90 percent range, which is right around where the industry likes it. Brad Cooke with Colliers International says that means it’s starting to make sense for developers to build again.

BRAD COOKE: We did not overbuild multi-family this last cycle, and actually, historic lows of development were the last couple of years. So, there’s a real demand.

BRODIE: Cooke says that demand is generally driven by population and job growth. But Pete TeKampe with the firm Marcus & Millichap looks at another factor.

PETE TEKAMPE: When evictions go up, that’s the earliest sign that there’s foot traffic at buildings, because if you’ve got a landlord dealing with tenants who have been struggling, they’re less likely to work with that tenant, get ‘em out of there, and then get the next person in.

BRODIE: TeKampe says the number of apartment evictions so far this year is pretty similar to last year. He compares that to 2004-05, when evictions were up close to 20 percent year over year. But, Tekampe and others also note apartments aren’t the only rental game in town.

MIKE ORR: We have a lot of people wanting to be landlords.

BRODIE: Mike Orr studies the real estate market at the WP Carey School of Business at ASU. He says exact numbers in the single family rental market are tough to come by, but he estimates up to a fifth of Valley homes may be rentals. Orr says cheap home prices and stable rents have some investors renting out the homes they’ve bought.

ORR: They’re still around. They’re competing with other investors who just want to buy and fix and flip. And they’re competing with ordinary people who actually want to live in the homes. And, unless you’re actually in that, it’s difficult for me to convey how competitive it is.

BRODIE: Orr expects that competition to diminish over time, as landlords who aren’t making money cash out, and families buy those houses. Pete O’Neil with Colliers International says demand in the multi-family market will justify the new supply.

O'NEIL: While times are not necessarily boom times, there certainly is a perception out there that things are better than they were at their worst, and that the outlook is one that is improving, too.

BRODIE: Back at the construction site at 26th Street and Camelback, Alliance Residential’s Robert Hicks says his company expects the 270 units to be rented out faster than any project the company has ever done.

HICKS: We believe this piece of land that’s been sitting vacant for a number of years will continue that rise that we are seeing in the market here and will help the rest of the area.

BRODIE: Hicks says his company hasn’t settled on rents for the new apartments yet, but is optimistic the market will continue to improve between now and when they open their doors by the end of the year.

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