Mixed Signals Posted in Second Quarter Include Higher Vacancy
Phoenix, Arizona – The Tucson multifamily real estate market posted mixed results during the second quarter of 2017, according to a report released by Colliers International in Greater Phoenix. Significant rent growth is motivating more investment in the marketplace, despite higher vacancy. Read the entire report by clicking Here.
Vacancy of rental units rose 30 basis points during second quarter to 6.8 percent. This vacancy is identical to mid-year 2016 and continues the 18-month pace of vacancy between six and seven percent. Northwest Tucson, Northeast Tucson and Catalina Foothills post the lowest vacancy in the low to mid five-percent range. Class A properties continue their popularity, posting just 6.1 percent, which is the lowest among the property classes.
Rental rates have risen five percent in the past 12 months, marking the largest year-over-year increase recorded in recent years. The average rental rate rose to $709 per month during the second quarter. Rents are increasing across all property classes with the most robust growth taking place in Class B buildings.
Second quarter sales of multifamily properties remained on pace with first quarter. The median price per unit accelerated and cap rates compressed a bit. This signals an improvement in the investor market to finish out 2017. The median price reached $55,900 per unit in the second quarter, which was 70 percent higher than the median price posted in first quarter. Cap rates declined 10 basis points during second quarter, reaching an average 6.4 percent.
Construction of new multifamily developments in Tucson has been modest, but accelerated in the past few months. Two noteworthy projects have broken ground, one in South Tucson with 122 units and another in Casa Adobes with 240 units. The past five years have brought an average of 228 new units to the market each quarter. Fewer than 50 units were delivered in the first half of 2017, compared to 350 units during the first half of 2016. Permitting activity has dropped off significantly with fewer than 30 permits being pulled in the second quarter.
Tucson’s mixed performance in the multifamily sector is fairly typical for the summer months. The significant drop in new construction is protecting the market from fluctuations in renter demand. Net absorption has totaled more than 1,000 units in the past 12 months and the strong rent growth is a harbinger for a healthy market moving forward.