May 10, 2016

Valley Real Estate Experts Confident that Metro Area Commercial Real Estate Will Continue to Expand

Media Note: Professor Mark Stapp is available for interviews on Phoenix real estate today.

While the Valley’s commercial real estate market continues to grow steadily; it will likely remain uneven for some product types and submarkets for the next six months.  This is according to participants in the Commercial Real Estate Broker Forum.  The group noted that while they’d like to say the entire metro commercial real estate market has fully recovered, the general consensus is that we are not quite out of the fully recovered.  

The findings are the result of a bi-annual gathering of some of the Valley’s most successful commercial real estate brokers. Experts say that while the Phoenix-area commercial real estate market is on solid ground, there are some outside factors that continue to impact decision making among potential commercial real estate investors.

When asked what direction the Phoenix market is moving, the participants who said “up” dropped to 67 percent from 100 percent, the first time since the survey was started 2 and half years ago – a 33 percent drop over the past year.  When asked where we are in the cycle, 62% percent said we were in “expansion” mode.  However, this is down from 90% just six months ago. 

While the respondents are feeling good about where we are – they are a little less optimistic than six months ago.   

“There is continued activity in the marketplace and that enthusiasm is building,” says Mark Stapp, director of the Master of Real Estate Development program at the W. P. Carey School of Business. “However, while there is optimism, there is also a bit of concern.  Since the Valley is completely submarket driven, some of the submarkets have not come close to recovery we were hoping to see.”  

Arizona State University’s W. P. Carey School of Business gathered the group this March to discuss their insights and thoughts about what will happen between April 2016 and September 2016. The event includes a survey about real estate market trends on multi-family, retail, industrial, office space and more.  Participants come from a variety of sectors, specializations and brokerage houses across the Valley. The event is moderated and co-organized by Pete Bolton, executive vice president and managing director of Newmark Grubb Knight Frank’s Phoenix office.  

Below are some additional highlights from the survey for the metro Phoenix area. To read the consensus statements and view the full Brokers Forum Report, visit the Center for Real Estate Theory and Practice.

Overall real estate market:

  • 62 percent of participants believe we are in an expansion cycle for the next six months.
  • 67 percent responded that the metro Phoenix market is moving up.
  • 92 percent agree they are optimistic about metro Phoenix commercial real estate market.

Multi-family real estate market:

  • Two-thirds of Americans currently cannot afford a 2 bedroom apartment.
  • A lot of institutional investment is leaning toward affordable housing options as “A” space is getting too expensive. 
  • As a result, there is a lot of pressure for Phoenix to increase the minimum wage.

Industrial real estate market:

  • 76 percent stated this is a tenant industrial market with 24 percent stating it is a landlord industrial market.

Office real estate market:

  • Only 14 percent of participants believe that office vacancy rates will go up in the next six months, while only 38 percent agree that office rents will go up during that same time frame. 

Retail real estate market:

  • Upwards 70 percent of the survey’s participants believe that retail vacancy rates will go up in the next six months with 30 percent agreeing that anchored center rates will go up during the same time frame.
  • Big box rents (over 25K SF) are headed slightly declined to 8 percent – down from 10 percent last October. 

Capital markets: 

  • 50 percent say interest rates for commercial loans are headed up in the next six months while 50 percent say they will remain stationary.
  • Only 22 percent believe investor returns are headed up.

Land and home real estate market:

  • 46 percent agree that the tight inventory of homes on the market is affecting the commercial side. This is up significantly from six months ago when 27 percent felt a tight home inventory market affected commercial real estate.
  • 85 percent said land prices will continue to rise and 100% percent say homebuilders will continue to purchase land.