After a long period of economic uncertainty, Phoenix, Arizona is experiencing an enviable rebound that is leading the state out of the economic crater caused by the pandemic. Job growth, personal income and retail sales have all shown tremendous growth in the past year, and that upward trend is expected to continue throughout 2022.
For multifamily investors looking for prosperous markets with a large renter base, this economic snapshot should be especially enticing.
At Arizona State University’s annual economic outlook luncheon, University economist Lee McPheters said that Arizona will be one of the first states to replace all of the jobs it lost during the pandemic.
In fact, since the wave of massive layoffs at the outset of COVID-19, the Phoenix market has been able to recoup almost all of the jobs that were lost during the pandemic. While there’s still a shortfall of approximately 6,000 jobs in metro Phoenix, there’s no reason to believe that those jobs won’t be added by the end of 2022. Metro Phoenix’s job market has also played a large part in the overall positive job growth numbers for Arizona, with the Valley alone having created more jobs than 35 other U.S. states have been able to. (About 67% of Arizona’s population resides in metro Phoenix.)
Job growth is just one area where Arizona has rebounded. As of December 2021, statewide retail sales were on pace to increase by 20% year-over-year and are on track to increase another 5% in 2022, according to McPheters. Personal incomes have also been steadily increasing, with the average Arizonan earning 5.5% more in 2021 than the year prior.
In addition to strong job creation and average increase in personal income, property values in metro Phoenix have skyrocketed. Home prices increased an average of 33% in the area in 2021, with analysts anticipating another increase of 4.5% to 6% in 2022. With inventory remaining scarce and highly sought after, local homeowners can rest assured that there isn’t a real estate crash on the horizon.
The surge in housing costs, with the average Zillow listing in metro Phoenix climbing to $475,000, has left a lot of would-be home buyers priced out of homeownership and continuing to rent. While that average is a record for Phoenix, it’s still low enough to lure new residents from pricier West Coast markets such as California, Seattle and Denver.
For multifamily investors active in this local market, the resurgence of Phoenix could not be better news. Factors including its continued population growth and strong job market, combined with a shortage of available houses on the market, have placed a heavy demand on rentals. In 2021, the multifamily vacancy rate was only 4.4%, with asking rents increasing year-over-year by 22.4%. That pushed the average monthly Phoenix multifamily rent to $1,436 in the third quarter, which is still substantially lower than markets in nearby states. Collectively, these trends paint a very favorable economic outlook, making the runway for Phoenix multifamily investments a hard scenario to beat.