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Rental Rates Expected to Continue Rising for Remainder of 2016
Phoenix, July 26, 2016 – Colliers International in Greater Phoenix released its mid-year 2016 Multifamily Statistics, which reports that the past three months were the strongest quarter in 10 years for property sales. The multifamily market is expected to continue its improvement during the second half of the year.
Investment activity reached its highest point since 2007 this past quarter with the greatest increased in transaction velocity occurring in properties selling for more than $20 million. Prices are rising in response to robust demand and improving property fundamentals. Sales volume more than doubled from first quarter to second quarter. The median price per unit was up 36% from a year ago, reaching $106,600. Cap rates were stable in the first half, settling in the mid-5% range. This level remains the same as we experienced in 2015.
Vacancy in the multifamily sector rose higher in the second quarter, which is typical during the summer months. The valley-wide rate remained below 6% and should take a dip in the second half of the year. Vacancy is at or below 5% in approximately one-third of the submarkets in Greater Phoenix.
The strong demand and low vacancies have pressured rental rates in the multifamily market. Rental rates have risen 5.4% in the first half of 2016 with the average unit reaching $919 per month. Rental rates have increased a total of 8.5% in the past twelve months. Robust demand will continue to push rates higher during the second half of 2016. Union Hills/Cave Creek and Metrocenter submarkets have seen rental spikes of 11.1 and 10.1 percent respectively during the past 12 months. Eleven of the Greater Phoenix 30 submarkets are now commanding $1,000 per month or greater per unit.
We just completed the fourth straight quarter of the multifamily market delivering more than 1,000 new units. During the past 12 months, the inventory has risen more than 7,800 units.
Currently, developers are constructing 9,700 units throughout the Valley and deliveries for 2016 are expected to top 6,500 units. Multifamily permitting surged in the second quarter and year-to-date activity is up 30% from the same period in 2015.
Renter demand is expected to offset the inventory growth new construction brings. The primary driver for demand is employment growth, which was less robust in the first half of 2016 than anticipated. Momentum should pick up with employment growth in the second half of 2016, especially in the construction and retail sectors. Investors remain bullish on Phoenix, working to acquire properties in a low-vacancy environment ahead of forecast rent increases. The current lending environment is also spurring investment activity with low interest rates and lenders offering favorable loan-to-value ratios.
About Colliers International Group Inc.
Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is an industry leading global real estate services company with more than 16,000 skilled professionals operating in 66 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting.
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Colliers International in Greater Phoenix has served clients locally and globally for more than 35 years.