Tucson Multifamily Sub-100-unit Complexes Remain Steady

By: Alan Mendelsberg and Joey Martinez, Multifamily Team Principals at Cushman & Wakefield | Picor

TUCSON, AZ (April 25, 2024) — Picor’s Multifamily Q1 2024 Marketbeat is reporting Tucson’s household income rose by 2.9% over the year and reached $68,500, helping to propel consumer spending.

Despite the increase in apartment vacancy to 8.23% in Q1, Tucson’s multifamily market demonstrated resilience and strength. This was evident in the significant progress made in six submarkets, indicating the robustness of specific regions. The market also showed its ability to adapt to demand, with an increase of 365 units in inventory. However, it’s important to note that Tucson’s sales velocity slowed considerably in Q1, with only one sale recorded over 100 units. On the other hand, ten multifamily sales transacted for properties between 5 and 100 units, reflecting a consistent activity level. The average price per unit for all sales in Q1 was $181,212, maintaining a stable market value.

Conversely, ten multifamily sales transacted for properties between 5 and 100 units. The average price per unit for all sales in Q1 equated to $181,212. There were 365 units newly delivered for the quarter.

“Reviewing loan production for the first quarter of 2024 was surprising when comparing it to the last five years of loan funding. Pima Federal Credit Union closed just north of 14mm in Q1 with eight transactions, six purchase requests and two refinances. This total production was only outpaced in volume and loan dollars in 2021, which was a staggering 22.44mm. Purchase requests showcase investors with demand in properties located near the University, and B class inventory. Cost of funds has impacted loan dollars; however, investors have adjusted their expectations for high LTV loans. Typically, down payments are around 40%, depending on the asset. Currently, we have eight transactions in process for Q2; five are purchase money requests, and three are refinances. We anticipate an increase in refinance requests for the remainder of 2024, for the first-time outpacing purchase requests. Inventory remains tight in Tucson, with little coming to market (or chatter of opportunities). Demand for multifamily remains high; however, there is still a gap between seller and buyer expectations. Tucson’s multifamily market fundamentals are strong. Its affordability compared to the Phoenix market is one of the key drivers. Affordability in conjunction with a limited supply leads to a more stable market.”

~ Robert Motz, Pima Federal Credit Union

The outlook for the Tucson multifamily market, while remaining neutral for the next two quarters, holds promise for growth. Notably, Blackstone’s significant multifamily purchases at the start of 2024 could stimulate institutional companies to become more active. Cash flow does not appear to be a major concern for most investor groups, but the overall market perception is adopting a cautious ‘wait and see’ approach. Despite the upcoming election, uncertainty with interest rates, and limited supply, the market for larger assets in 2024 is expected to be relatively stagnant. However, sub-100-unit complexes are likely to continue seeing a slow, consistent pace of supply, with offerings continuing to attract significant interest.

Download the full Q1 2024 Market Report here.