Notes from the CCIM/IREM 2008 economic forecast meeting.

What we had 1 and 2 years ago is gone.  This is obvious for most sectors of the national real estate market and the Greater Phoenix real estate market.  During that period small as well as large apartment complexes for sale received multiple offers, Cap rates hovered at 5% on  pro-forma numbers and most everyone was happy.

Now as we head into 2008 not only have sales gone down but cap rates have inched up as well, though the market is still good.

The apartment market in Phoenix MSA is much slower with many properties languishing on the market, there are still multiple offers but as the panel pointed out, they are more varied with increased due diligence and longer escrow times. 

Vacancy rates in the Phoenix MSA are reported to be approximately 10% though the real number is 2-4 points higher and may be as high as 15%. 

The slowing housing market should have helped vacancy rates and rental rates as a result of people moving into apartments either because they could not afford a home or because of the foreclosures.  This has not happened.  In fact the last few years of building and investing has created an unprecedented shadow market of rental homes and rental condominiums that compete with apartments.   This has resulted in increased concessions, like a month free of rent and the like. 

The panel noted that renters have become more sophisticated and price sensitive.  They know where to look for good rental deals and they negotiate rents.  We have noticed this as will with the properties we manage.

In addition the results of the employee sanctions law which went into effect the beginning of this year had effects earlier as illegal workers and tenants left to other states, decreasing the rental pool, especially for B and C properties. 

 
What does the future look like for the apartment market in Greater Phoenix?  For the long term it will be strong; wise investments in apartments will do well, as they usually do over the long term.  The panel stressed that by mid year 2008 it will be a good time to buy apartment buildings.  I see this as well.  Per unit pricing has improved and cap rates are up and the long term out look is good.  

The market may be soft in East Mesa, The Phoenix area North of Loop 101 and some areas in the West because apartment buildings are going up ahead of the demand curve, but they will do well as those areas develop in the near future. 

The Phoenix valley is still attracting over 100,000 people a year and job growth is weaker but still above the national average. 
Land zoned for multifamily use is becoming more scare and rezoning is quite difficult. 
2008 will be a good year to buy multifamily land and properties for the long term hold. 2008 will be a difficult time for property managers. 
Hold on to the property and in the long term you will make money, was the consensus of the panel. 

Please keep in mind that this is an survey of the overall Greater Phoenix apartment market.  The individual Phoenix markets have their own trends which overall follow the above trend but vary from it in detail. 

Call me at 602-628-4349, Artur Ciesielski, CCIM to discuss your investment in multifamily investment apartments in Greater Phoenix.