2014 Looks Promising
By: Elliott Pollack
Greater Phoenix Blue Chip
Third Quarter, 2012
This quarters Greater Phoenix Blue Chip Real Estate Consensus gives us our first insights into 2014. The single family housing forecasts for 2012 and 2013 have changed very little. The consensus forecast for single-family permits now stands at just above 12,000 in 2012 and 19,500 for 2013. This compares with slightly fewer than 6,300 permits in 2011. Thus, large percentage gains are expected both this year and next. For 2014, the consensus forecast exceeds 28,500 units, another very large percentage gain that would get single-family permits essentially back to trend. The interesting thing about the 2013 and 2014 forecasts of single-family permits is the broad range. Estimates for 2013 extend from a low of 11,500 to 32,000 permits. 2014 forecasts range from a low of 17,600 to a high of over 40,000 units. Indeed, of those eleven forecasters who made single-family projections for 2014, five are at 29,000 units or above. This implies that the single-family market becomes normalized in 2014.
As for multi-family permits, the number is also expected to grow rapidly in percentage terms over the next couple of years. From just under 2,000 units in 2011, multi-family permits are projected to increase to about 3,900 units in 2012, almost 6,000 units in 2013 and over 8,300 units in 2014. Absorption is expected to remain strong in all three years. Given the lags between permitting and occupancy, vacancy rates are expected to decline from 7.8% at year-end 2012 to 7% by year-end 2013, and 6.4% by year end 2014. Thus, the forecast calls for continued strength in both single family and apartment permits.
The office category, on the other hand, is projected to make very modest progress. Vacancy rates were about 25.5% at year-end 2011. The forecast projects rates will move to just below 24.0% this year end, dip to 22.0% next year, and then go to 20.0% in 2014. This is because very little new construction is anticipated in 2013 and 2014, while absorption should get progressively stronger from about 1.2 million square feet this year, 1.9 million in 2013, and over 2.3 million in 2014.
For industrial properties, vacancy rates are expected to decline to 11.9% at year-end 2012, 11.0% at year-end 2013 and about 10.5% by year-end 2014. This is due to a combination of strong construction activity and even stronger absorption. Construction activity is expected to more than double next year and be up another 30% in 2014.
Retail is also improving, but very slowly. Vacancy rates are expected to drop from 12.2% at year-end 2011 to about 12.0% at the end of this year, 11.0% the end of next year and 10.0% at the end of 2014. Construction is expected to grow only modestly over the next couple of years and absorption is expected to get stronger, albeit moderately by historic standards.
Overall, the picture remains bright for the residential markets in both single family and apartments. For the commercial markets, improvements are expected in industrial and retail. The office market is also improving, but modestly so.
View the Phoenix Real Estate Forecast Tables PDF