Colliers International Releases 4Q 2015 Tucson Metro Area Multifamily Market Report
Colliers International in Greater Phoenix released Tucson Metro Area Multifamily Market Report for fourth quarter 2015. Report highlights are outlined below. For more details, refer to the attached report or click here to view online.
The Tucson multifamily market strengthened to close 2015, due in large part to a local labor market that gained momentum in the second half of the year. Until the third quarter, local employers had been slow to expand payrolls, even as the national economy gained momentum. That pattern changed course beginning in the third quarter and employment growth accelerated in the final three months of the year.
The Tucson multifamily investment market is gaining momentum as property performance improves. Sales velocity increased in four of the past five years, and the number of properties that traded in 2015 reached an eight-year high.
One trend that began to take shape in late-2015 that highlights the growing strength of the local market was the sale of new, high-quality assets to institutional and out-of-state investors. Transaction velocity will likely accelerate as the Tucson multifamily market attracts a deeper and more diverse buyer pool.
Employment growth in Tucson closed 2015 on an upswing, as 5,600 jobs were created during the fourth quarter. For the year, 8,900 jobs were added, more than doubling the pace of growth recorded in 2014.
Vacancy ended 2015 at 7.8 percent, 110 basis points lower than one year ago. Vacancy has been declining at a fairly steady pace even as new multifamily units have come online.
As the vacancy rate has tightened, rents have trended higher. In 2015, average asking rents rose 3 percent to $657 per month. Additional rent increases are expected in 2016.
Sales of multifamily buildings slowed in the fourth quarter; but even after accounting for the slight dip in the final three months of the year, the total number of transactions in 2015 surged 43 percent from 2014 levels. The median price was approximately $33,100 per unit in 2015, with cap rates averaging 6.7 percent.
Outlook:
The Tucson multifamily market will benefit from both the supply side and the demand side in 2016. Following three straight years of deliveries of more than 1,000 units per year from 2012-2014, additions to inventory slowed to a more manageable level in 2015, and a similar level of new construction is forecast for 2016.
Renter demand for apartments should strengthen as employers expand payrolls at a more rapid pace than in recent years. These conditions should lead to additional declines in vacancy and an uptick in rents.
With property income revenues on the rise and forecasts calling for additional gains in 2016, investors will likely continue to target multifamily assets that can be acquired at lower price points than in surrounding markets and offer competitive cap rates.
The rise in development over the past few years will likely continue to support investment activity. Approximately one-third of the projects delivered since 2010 have changed hands through 2015, and new projects should continue to attract investor attention as they lease up.