Phoenix Rising: A Tale of Secondary-City Strength

We’ve all heard of the upsurge of traditionally secondary cities, especially as millennial's establish themselves in markets
that provide a host of made-for-the-market amenities. That’s why Lee & Associates’ Todd Braun is bullish on the Phoenix multifamily.

August 28, 2019 (PHOENIX, AZ) - Affordability and a healthy return on investments are just two of the reasons why younger renters and diversifying investors are migrating to multifamily opportunities in secondary markets. Arguably no metro in the country exemplifies these trends more than Phoenix. Just ask Todd Braun, the principal at Lee & Associates, Arizona. Actually, you don’t have to. We did. And in this exclusive interview, he told So let’s start with the macro picture. What’s the headline in the Southwest multifamily market?
Todd Braun: We’re seeing a bit of bifurcation in the Southwest as a whole. On one hand, there’s Phoenix and Las Vegas, which have seen occupancy and rent growth that are among the best in the country. That’s the product of a healthy market, with both job and population growth and keeping construction in check.

Phoenix, in particular, is seeing a growing wave of employers and investors who are leaving California and heading to Arizona. This can be partially attributed to the state’s more favorable business environment, with lower wages and taxes, cheaper energy costs, and more affordable land, housing, and commercial lease rates.

Now, it should be said that this wasn’t always the case. In the 1980s and ’90s, Phoenix and Vegas were notorious boom-and-bust markets. It was common to see an influx of developers and new construction during strong periods in the market cycle, subsequently the economy would turn bearish while a large number of new multifamily deliveries were hitting the market. The net result was a precipitous drop in apartment market fundamentals.

But today, in this cycle, Phoenix and Las Vegas are doing very well. In fact, they’re outpacing the next closest market, which is Atlanta. The rental growth rate there is about five percent. The national average is three. But Phoenix and Vegas are approaching eight percent rent growth. One of the differences during our current cycle is that new construction has stayed close to or below demand levels. Let’s dig a little deeper into the out-migration from California. How is it impacting employment?
Braun: There’s a decent amount of employers that don’t want to be located in California any longer because of the factors we mentioned. Phoenix has benefited from this outflow, partially because of geographic proximity and also due to the pro business environment of Arizona. Metro Phoenix added 70,000 jobs last year and roughly 100,000 in population growth, which again is among the top in the country.

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