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By Elliott Pollack
The first quarter 2013 Blue Chip Forecast continues to suggest strong improvement in the real estate sector, especially in residential real estate. Single family permits, after reaching 11,615 permits in 2012, are expected to grow to more than 18,000 units in 2013 and about 25,000 permits in 2014. The range of forecasts in 2013 is within a fairly narrow band (15,000 to 20,000 permits) with one exception (25,000). The range of forecasts for 2014 is somewhat broader. Most of the forecasts for 2014 are between 22,000 and 25,000 permits, but the range of forecasts fall between 19,700 and 32,300 permits for 2014. The 2013 forecast suggests more than a 55% gain in 2013 and the 2014 forecast projects another 40% gain. The 2014 forecast suggests that the Phoenix market would be approaching back to trend at that point. If that occurs, it would be an amazing recovery from the 2011 bottom. In any case, the trend seems positive.
Multifamily vacancy rates are expected to continue to decline to about 7% at year-end 2013 and just over 6.6% by year-end 2014. This is because absorption is expected to exceed new construction in both years, albeit, modestly so. While there has been a lot of talk in the press about the number of apartments being built, the lead times are such that most will not come on stream in 2013 and many will not come on stream until past 2014. Thus, that market should continue to be tight.
The office market has begun its recovery and office vacancy rates are expected to continue their decline in 2013 and 2014. From about a 24% vacancy rate at the end of 2012, vacancy rates are expected to drop to 22% by year end 2013 and 19% by year end 2014. That still suggests that the office market has a ways to go to get to a point where rents will start to increase. Usually, that is seen as vacancy rates approach and pass below 15%. The good news is that construction is expected to be limited in 2013 and 2014, but absorption is expected to pick up to about 1.8 million square feet in 2013 and to about 2.2 million square feet in 2014. Major new construction will have to wait until vacancy rates drop to or below 15%.
The retail market is also expected to improve as absorption is expected to outpace new supply in both 2013 and 2014. Vacancy rates at year-end 2013 are expected to be 11% and drop to 10% by year-end 2014. So, while the retail market is making a recovery, the recovery is relatively slow.
On the other hand, the industrial market continues to show strength. Vacancy rates are expected to decline to 10.9% by year end 2013 and to almost 10% by year-end 2014. Total construction, while remaining strong, is expected to lag absorption. Most absorption has been in large box users. As the economy improves, absorption in small space should do better.
Thus, the panel believes that the housing market will continue to improve, that the outlook for apartments is quite good, and that the outlook for office, retail and industrial, while lagging, is also improving. It should be noted that the survey was done before sequestration in early March.
View the Phoenix Real Estate Forecast Tables