Based on Data Available First Quarter, 2018

Expectations Still High

By Elliott Pollack
Greater Phoenix Blue Chip
Second Quarter, 2018

    If you’ve been happy about the optimism expressed by the panel over the past year, you will continue to be happy. The panel’s forecast remains about the same as it has been over the past few surveys. This is true despite the threat of rising interest rates and a trade war (notice that the media has not defined war). The panel’s expectations suggest the following:
• Single family permit activity will continue to expand.
• Apartment permits will stay near current levels, despite excess capacity in certain rental price ranges in certain areas of Greater Phoenix.
• Apartment absorption will continue to remain strong.
• Apartment vacancies will rise only modestly.
• The office market will remain relatively strong.
• Office vacancies will decline modestly.
• The industrial market remains strong.
• Industrial vacancies will rise only modestly.
• Retail construction, while expanding, will remain weak by historic standards.
• Rental vacancies will rise.

    Current data coming out of the new single family market suggests that the panel is in the ball park with its forecast. Permits were up 14.7% so far this year. The very strong job market and higher wages combined with millennials who are aging, finding good jobs and paying off student loan debt suggest that the single family market in Greater Phoenix will continue to do well.

    As for apartments, there seems to be strong demand in all sectors. But, the supply that is being delivered and planned is mostly in the upper end of the market, concentrated in certain geographic areas of the Greater Phoenix metro area. These prime locations have become very competitive. Yet, the outlook for the mid-market (worker housing) is very strong. Despite this, few apartment builders have figured out how to meet the demand created by the mid-market and lower.

    The office market remains strong relative to the past few years. The panel expects a moderate increase in construction and somewhat slower absorption growth in 2019. Vacancies are expected to rise slightly as a result.

    The industrial market is also expected to stay strong in 2018. Absorptions will be exceeded by new supply. Industrial construction is expected to slow in 2019 as is absorption. Vacancy rates should rise in 2019, albeit, modestly.