Phoenix continues to attract investor attention. According to a survey from CBRE, Phoenix ranks in the top-10 target investment markets for 2019, coming in at number 9 on the list. The city jumped two spots from a previous survey by CBRE. The survey analyzes all asset classes, and showed investor interest in all four of the major food groups: retail, multifamily, industrial and office. It is no surprise that Phoenix’s growing economy is fueling the investor attention.
“Simply put, it’s all about the economic fundamentals. Strong employment and population growth, economic diversity and relatively tempered development of new product across all property types have contributed to significant investor interest in Phoenix,” Paul Komadina, senior managing director and Arizona market leader for CBRE, tells GlobeSt.com. “Over the last decade, the Phoenix market has transformed, shifting its perception away from ‘boom and bust’ to a market with sustainable growth. Phoenix is a dynamic and fast growing market and our supply and demand story is much healthier than ever before. This story positions Phoenix well to capture investors looking to secondary markets with strong fundamentals and higher yields.”
While there is investor interest in all asset classes, multifamily and industrial are the tied favorites. 38% of investors named industrial as the top investment in the market, while 37% named multifamily. “Residential development has mirrored or trended below household formation since 2010, resulting in pent-up demand for multifamily housing and supporting rent growth,” Komadina says. “Going back to the basics, Phoenix has so much to offer, from an excellent quality of life, modern infrastructure and transportation, sports, and abundance of outdoor activities and an incredibly welcoming environment for businesses to flourish.”
Affordability has also driven investor interest in the multifamily and residential asset class. “All of this comes at a comparatively lower cost of living, with just 20% of a median income earner’s paycheck going towards rent, compare this to 35%-40% in Los Angeles, San Francisco and New York,” says Komadina. “With an average of 174 residents moving to the Valley each day, fastest housing appreciation in the country in a rising interest rate environment, apartments are an attractive alternative to home buying. Much of the new supply of mid- and high-rise projects are concentrated in growing employment corridors and amenity-rich submarkets, like Tempe, Scottsdale, Midtown and downtown Phoenix.”
While investor sentiment is shifting in some markets, investors have a strong outlook on Phoenix and are bullish on future growth. “We do not see a slow-down in the Phoenix market in the near term for a couple of primary reasons,” explains Komadina. “An influx of new sources of capital—from domestic to foreign—came into Phoenix in 2018, which signals that investors continue to put their trust in Phoenix and we believe that others will follow suit. Looking ahead, investors will look beyond cap rate compression and associated appreciation—they are looking for healthy fundamentals that will support cash flow. Cap rates are expected to remain stable as we expect interest rates to remain relatively flat through the balance of 2019 but appreciation in rental rates will provide for annual returns that will keep investors happy.”
With Phoenix as a top target market, Komadina expects strong capital activity this year. “Phoenix is a great place to invest for the long haul. Healthy fundamentals, relative affordability and comparatively higher yields attracted active local buyers and new investors to Phoenix in 2018,” he says. “We expect to continue seeing significant net migration, producing college graduates and creating quality jobs, which will result in prolonged healthy investment activity. We expect to remain a top growth market with this additional runway.”