What’s the Next Strategic Move for Phoenix Developers?

Colliers International released an annual report on the Phoenix, AZ real estate market. Here are the highlights:

  • The market for office space in Phoenix improved year-over-year (YOY) as vacancies decrease and rents increase. This has prompted new construction.
  • The industrial market strengthened in the last quarter of 2015. Development of industrial space slowed in the second half of the year, then vacancy decreased due to a surge of absorption from a few major users.
  • Though the retail market was slower to recover than other sectors, vacancy rates still decreased YOY. Rents have started to increase following several years of annual decreases; the average asking price went up 3.4% in 2015.
  • The housing market will be the top driver of land sales, with single-family permits increasing through 2015 and into 2016. In fact, it is estimated that permitting of single-family homes will increase by at least 40% YOY in 2016. The price of a new home has remained steady.
  • Even though multifamily permits decreased in 2015, they are expected to bounce back in 2016, simply due to timing. Those who bought sites in 2015 will now begin seeking permits in Q1 and Q2 of 2016. Densities will increase, but prices will remain steady based on pricing per unit.

So how do developers react strategically this year?

Density is one consideration; higher densities provide more value for the developers in many cases. Location is another major deciding factor of opportunities. The strengthening of the local housing market and employment outlook means land sales in Phoenix will continue to accelerate in 2016.

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