Among the nation’s largest apartment markets, Phoenix has achieved one of the biggest comebacks during the current economic cycle. The market led the country in occupancy growth in the past nine years, and recent rent increases have moved the market into the top 10 for cycle rent growth.
The low point for the U.S. apartment market hit in late 2009, when occupancy dropped to a feeble 92.1%. At that time, Phoenix was the nation’s worst performer, with a reading of just 88.1%.
Nine years later, at the end of 2018, the country has pulled itself out of economic decline, and occupancy is now at 95.4%. While Phoenix’s most recent occupancy showing – also at 95.4% – isn’t exactly at a premium, nationally speaking, the late 2018 figure here represents a comeback of 730 basis points (bps) over the late 2009 reading. That’s the biggest jump among the nation’s largest 50 markets, and well ahead of the progress made in Detroit and Jacksonville, which tied for #2, with increases of 630 bps.
Climbing occupancy in Phoenix is especially impressive given the amount of new supply received in the cycle. More than 40,000 units delivered in Phoenix since 2010, making it one of the top 15 markets for new supply this cycle. Those deliveries grew inventory about 12%. Nearly 11,000 more units are in progress, the ninth largest construction volume nationally at the end of 2018.
New supply has presented a headwind to Phoenix’s top-end apartments, slowing occupancy improvement. Phoenix’s occupancy recovery is, in large part, due to momentum in the Class C product segment, according to the latest RealPage Asset Optimization webcast. Occupancy in the most affordable stock has climbed a stunning 1,020 bps in the current economic cycle, well ahead of the increases of 670 bps in the Class B units, and the 520 bps upturn in the most expensive Class A product.
Class C occupancy growth in Phoenix was also well ahead of the national performance for that product segment. In the U.S. overall, occupancy in Class C stock has increased by about half the Phoenix volume, or 530 bps.
In the past year alone, occupancy in Phoenix’s Class C stock has made notable progress, going from hovering around the 95% mark throughout much of 2016 and 2017 to around 96% in 2018. This reflects, in part, affordability challenges in middle-tier stock. As rent growth surged in Class B stock in 2018, many found themselves priced out of those middle-tier units, benefitting Class C stock.
Rents soared 7.9% in Class B product in 2018, which drove Phoenix’s 7.4% total rent growth for the year. That increase placed the market among the national top 10 for annual rent growth and overall cycle price hikes. In 2018, rents grew 7.4% in Phoenix, tying with Las Vegas as the strongest price increase among the nation’s 50 largest apartment markets. That performance was well ahead of the second place showing of 5% in Orlando.
The 2018 rent increase is the latest in a trend of outperformance in Phoenix. The market has topped the U.S. norm for annual rent growth since 2013 and has ranked in the nation’s top 10 since 2015. Despite ranking #1, the 7.4% increase in 2018 isn’t the highest Phoenix has seen during the current cycle. Annual hikes got as steep as 7.6% in 2016. Still, it’s quite a surge from the 4% to 5% showings from 2017, and is well ahead of the market’s long-term average.
For the cycle overall, rent growth in Phoenix totaled 41.7%, the #8 performance among the nation’s 50 largest apartment markets. Just a year ago, Phoenix missed out on a top 10 national performance for cycle rent growth, but price hikes in 2018 pushed the market firmly onto the leaderboard.
Beating Phoenix for cycle rent growth at the end of 2018 were a handful of California markets (San Jose, Oakland, San Francisco and Sacramento) and other Western locales (Denver, Portland and Seattle).
Rent change during the cycle has been strong in Phoenix’s upper-tier product lines. Class A and B units logged total price increases of 64.4% and 41.2%, respectively, during the past nine years. Meanwhile, rents in the Class C stock climbed 11.8%. While that increase in the affordable product is strong, it comes in a bit below the national average of 16% for Class C units.