Metro Phoenix renters, brace yourselves for more tough times.
The Valley’s apartment market is drawing big investors paying record prices for complexes, and that is a sure sign rents will keep climbing. Phoenix-area apartment complexes are selling almost daily for more than $100 million each, and the price per apartment is beginning to rival the cost of the typical Valley house in a growing number of complexes.
During 2021, the average rent climbed fast, and asking rents jumped. Rents on small Gilbert apartments climbed higher than anywhere else in the U.S. last year, according to one national apartment researcher. Renters are competing with more than a dozen others to sign a lease. And the metro Phoenix’s apartment vacancy rate is near a 50-year low. “It’s been a tough year for renters in Phoenix,” said analyst Lily Medeiros with national rental listing service Dwellsy.
Metro Phoenix rental market update
BI Multifamily Research Manager Drew Ricciardi expects the average monthly rent in the Valley to reach about $1,750 by the end of 2022, up about 18% from the average for 2021. The average rent for a Valley apartment climbed 18.4%, or $230, to hit $1,480 in 2021, according to ABI. The median asking rent in the Phoenix area jumped 60% to $1,900 last year, reports Dwellsy. “That’s an extra $715 that hard working renters in Phoenix have to shell out every month to make rent,” said Medeiros. “That’s truly crazy.”
The asking rent is the price tenants first see when looking at a complex. It is higher than the average rent because it doesn’t factor in landlord concessions, but it can deter renters from filling out an application. The average rent for a one-bedroom in Gilbert skyrocketed 89% during 2021, according to ApartmentGuide. Part of the reason for the big jump, besides demand from a growing number of people moving to the Valley, is not enough new apartments being built in the East Valley town.
Valley renters are competing with 20 others for vacant apartments now, and the typical rental is only empty for 25 days, according to RentCafe. The average vacancy rate for a Phoenix-area apartment complex is hovering around 3.8%, according to ABI. That very low level of available apartments, as well as rapidly rising rents, is drawing many investors.
Pricey apartment sales
More than 17% of all metro Phoenix apartment complexes with at least 10units sold in 2021, said Thomas Brophy, research director with real estate brokerage Colliers International. He tracked 49,407 apartment units selling for a total of $13.18 billion last year. That’s a 140% increase from 2020. The average price per apartment climbed 33.2% to reach $256,195. But 8% of all big Valley apartment properties to sell last year went for more than $400,000 a unit, Brophy said.
The BB Living Townhomes rentals at Eastmark in Mesa set a record, selling for almost $576,000 per unit. The median price of a metro Phoenix home is about $425,000. Deep-pocketed investors closed out 2021 with some huge apartment deals.
In late December, the Vaseo apartments in north Phoenix sold to Dallas- based Invesco Real Estate for more than $305 million. The complex has been in the top 10 for filing evictions against tenants since 2015. Klein Financial Corp. of Palo Alto, California, sold the property. Last month, New York-based real estate giant Blackstone paid $430 million for three apartment complexes in Phoenix, Tempe and Gilbert.
More apartments needed now
Phoenix drew a higher percentage of new residents than any other major U.S. city between 2010 and 2020, according to the latest census data released last week. The Valley needs a lot more apartments to house its growing population. About 9,500 apartments were built in metro Phoenix last year. Almost 60,000 additional apartments are under construction or planned. But big roadblocks to building the much-needed housing include not-in- my-backyard-ism, zoning issues and political backlash, as well as rising land, labor and construction costs. “Valley rents are among the fastest growing in the nation, and wages aren’t growing that fast,” said Mark Stapp, director of the Master of Real Estate Development program at Arizona State University. He said developing apartments, particularly affordable ones, has become too tough in metro Phoenix.
Sorry renters. Monthly apartment payments will continue to rise at heady rates if more aren’t built quickly.
Author: Catherine Reagor