TUCSON, ARIZONA -- Northmarq is reporting the Tucson multifamily market has been on an extended upswing, a trend that continued during the first quarter. Apartment rents have surged in each of the past three quarters and are increasing at one of the highest rates of any major market in the country. A healthy pace of renter demand has caused vacancies to tighten, despite volatility in the local economy in 2020. With the economic recovery forecast to gain momentum in the coming quarters, multifamily conditions should remain favorable through the remainder of this year.
Investment conditions in Tucson at the beginning of 2021 looked very similar to the market during much of 2020. While most markets recorded a decline in activity during the past year, sales velocity in Tucson gained momentum. In the first quarter, sales were active, although transaction counts did not quite match year-earlier levels. With rents recording robust gains, prices have been on the rise in recent years, and the median price thus far in 2021 is up more than 15 percent from the 2020 figure. Average cap rates have remained in a tight range since the beginning of 2019.
Highlights include:
- Vacancies in the Tucson multifamily market remained at historically low levels in the first quarter, supporting rapid rent growth and prompting new development. Investors are responding to the strengthening market conditions by pushing per-unit sales prices higher.
- After vacancy dipped to a 25-year low at the end of last year, the rate held steady at 4.3 percent in the first quarter. Year over year, vacancy in Tucson is down 90 basis points.
- Asking rents continued their upward surge to start 2021, finishing the first quarter at $914 per month. Local rents have spiked 8.9 percent in the past year.
- After a very steady level of activity in 2020, sales velocity dipped approximately 12 percent to start this year. Despite a modest dip in activity, the median price advanced from levels recorded in 2020, and cap rates held steady.
- Projects totaling approximately 1,270 apartment units are under construction in Tucson, similar to totals from one year ago. New development is concentrated in the University submarket, where three projects totaling nearly 750 units are currently underway.
- Cap rates averaged approximately 5.6 percent during the first quarter, closely tracking 2020 levels. Some properties have traded with cap rates near 4.5 percent