Rising mortgage rates and industrial expansion could make Phoenix one of the best cities to invest in multifamily in 2023
Arizona continues to be a preferred destination for those leaving other metropolitan areas in the Northeast and West Coast. With new tax incentives and commercial expansions coming into the Valley, Arizona is facing a significant challenge in meeting housing and affordability demands as we head into 2023. Here is a review of trends emerging in housing and industrial growth as well as new commercial and community projects slated to begin this year.
Housing and affordability trends in Phoenix Metro
Transactional data from the U-Haul Growth Index shows migration to Southeast and Southwest US has still continued through 2022, though it has slowed from its peak in 2021. California and Illinois topped the list of states for the third year in a row for highest numbers of one-way U-Hauls headed out of state as people continue to leave regions of the Northeast and West Coast.
According to the Growth Index, Arizona currently ranks in the top 10 growth states for attracting and maintaining residents. Texas remains the No.1 growth state for the second consecutive year, while Florida, ranking second, has maintained its position in the top three growth states for the last seven years in a row.
However, as people continue to arrive in Arizona, buying property in Phoenix continues to be a challenge. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index released August 2022, only 22.3% of homes sold in the Phoenix metro were affordable to those earning the median family income in the 2nd quarter of 2022. George Hammond from AZ Big Media reports that the affordability of all Arizona metros saw a decline, while only three had a higher share of affordable homes than the national average: Sierra Vista-Douglas at 54.2%, Yuma at 43.3%, and Lake Havasu City-Kingman at 42.9%.
While 28% of homes sold above their first list price in November nationwide, the year-over-year monthly mortgage cost in Metro Phoenix increased by 53.1%, as reported by the December Zillow Home Value Index. According to AZ Business Magazine, the typical monthly mortgage cost of a median value home is now just under $1800, with payments 62% higher than last December and $875 higher than in December 2019.
“The housing market ended 2022 in a deep freeze, but there are some green shoots pushing up,” said Jeff Tucker, senior economist at Zillow. “The recent thaw in mortgage rates has begun to attract some renewed interest from buyers, and home sales are climbing again compared to last year. If rates continue to march down this spring and sellers return in seasonal force, the housing market just might get to have a normal — maybe even boring — year.”
Arizona continues to rise within tech industry as more companies expand into Phoenix
In June 2016, the Phoenix-Mesa-Scottsdale area was named as the “City Winning the Battle for Information Jobs” by Forbes, excluding San Francisco. Forbes attributed this job growth to Bay Area companies expanding into the area in recent years, such as Uber, Yelp, Weebly and Shutterfly. According to Phoenix Business Journal, that same year Phoenix was ranked third for tech job growth among large markets in CBRE’s annual “Scoring Tech Talent” report.
Forbes noted that from 2010 to 2016, the information workforce expanded by 39.29% which was the third highest increase of any metropolitan area. In addition, software employment grew by 28.8% during the same time period, while tech employment increased by 78% between 2000 to 2016.
As more tech companies are expanding to Arizona, more jobs are being created. AZ Big Media shared that a global solar cell and module manufacturing leader, JA Solar, has announced that it has leased its first US manufacturing facility in Phoenix, AZ. The facility is a $60 million investment expected to create over 600 new jobs when it becomes operational by the end of this year. It will produce high-efficiency solar panels for commercial and residential rooftop use, making it the largest manufacturing site of solar/PV products in Arizona once fully operational.
Sandra Watson, President and CEO of the Arizona Commerce Authority, stated “JA Solar’s new facility showcases Arizona’s attractiveness as a global manufacturing destination. We are grateful JA Solar will manufacture its high-efficiency solar panels in Phoenix, enhancing Arizona’s renewable energy industry.”
The Phoenix Business Journal reported that Urbix Inc., the only US company producing natural battery-grade graphite for use in electric vehicles and battery storage systems, is set to establish a new $280 million production facility by the end of March—and has eyes on Arizona. Currently based out of Mesa, the company has entered into a joint development agreement with South Korea-based global electric vehicle battery maker SK On Co. Ltd. to develop materials for advanced lithium-ion batteries.
The plans call for producing enough battery products to power 350,000 high-performance EVs by 2025. While Urbix is currently considering facility sites both inside and outside the state, it currently employs 55 people in Arizona and hopes to hire another 30 people over the next year.
Commercial expansions bringing more jobs and industrial diversity to Arizona
Arizona Commercial Real Estate Magazine (AZRE) reported that Elliot Gateway, a 516K SF logistics park hosting four buildings and sitting on 40.5 acres in Mesa, has just completed construction. Owned by Trammell Crow Company, global commercial real estate developer, and JV partner CBRE Investment Management, a global real assets investment management firm, the park has three of four buildings currently available for lease.
yan Norris of Trammell Crow Company said, “The remainder of the space that is available for lease at Elliot Gateway is well-suited for a variety of uses, including high-tech manufacturing and logistics.” The buildings were also designed with sustainability in mind, featuring roof systems and desert landscaping that minimize electrical and water usage.
“The placement and design of Elliot Gateway turns a traditional industrial project into a dynamic, horizontal mixed-use business park that will attract heavy-hitter industrial/employment opportunities”, shared Rusty Martin, General Manager of the Southwest region of Graycor Construction Company who served as general contractor for the project.
AZRE also reported that Phase One of Goodyear Airpark is underway. The City of Goodyear joined this month with Lincoln Property Company’s Southwest division, LPC Desert West, and Scottsdale-based Harvard Investments, to begin work on the 7 million SF Class A industrial development. Phase One will total 1.6 million SF across six buildings which target mid- and large-scale users.
Once complete, the Airpark will total up to 20 buildings across 565 acres adjacent to Phoenix-Goodyear Airport in Goodyear, Arizona. “Goodyear AirPark sits on one of the last remaining large, industrial-zoned land sites in Goodyear, which is the second-fastest growing city in our state and the ninth fastest growing city in the nation,” shared David Krumwiede, Lincoln Property Company Senior Executive Vice President.
Another large-scale build, a new 38,000 SF campus headquarters for Child Crisis Arizona, is scheduled to be complete by mid-2024 as reported by AZRE. The nonprofit organization, whose mission is to provide children and youth in Arizona a safe environment by creating strong and successful families, joined this past month with board members, major funders, and local dignitaries—including Mesa Vice Mayor Francisco Herediato— to break ground for its climate-friendly, net-zero campus located in Mesa.
Collaborations with other organizations are planned to take place at completion of the campus with those such as Ballet Arizona, United Food Bank, Big Brothers Big Sisters, and Free Arts for Abused Children of Arizona. The new campus will offer services for low-income children and families including foster care and adoption services, children’s counseling, family education, and more.
Phoenix is slated to become home to the new corporate headquarters for Discount Tire, a leading independent tire retailer, reports AZRE. Discount Tire recently purchased 35 acres near Loop 101 and State Route 51 at an Arizona State Land Department public auction for over $29.4 million. Sale proceeds are planned to be invested in the Permanent Land Endowment Trust Fund by the state to benefit K-12 education in Arizona.
AZRE stated the 300,000SF office building represents one of the largest economic development deals of its kind in recent years in Phoenix. “The company’s decision to locate here means 1,100 high-value jobs,” said Phoenix Mayor Kate Gallego. “Plus, with Discount Tire ranking as one of the largest private companies in the U.S. and bringing its award-winning pedigree for being customer-centric, its presence further elevates Phoenix’s reputation for excellence.”
Discount Tire has maintained its headquarters in Arizona since 1970, being named a top employer in Arizona multiple times. In 2022, it was ranked as the No. 77 largest company on the “America’s Largest Private Companies”.
Tax incentives could mean new investment opportunities in Arizona in the near future
According to Kyle Backer with AZ Big Media, after the Great Recession Arizona resolved to put itself on the path to becoming a Tier 1 market by diversifying its industries and creating a more resilient economy. Among the many leaders responsible for enabling such a shift is Chris Camacho, president and CEO of Greater Phoenix Economic Council (GPEC).
In an interview with AZ Business Magazine, Camacho shared that Arizona has been part of a nationwide supercycle for the past five to six years of rapid expansion in advanced technologies. Camacho believes that that is largely due to Arizona’s pro-business climate, particularly because of the kind of tax incentives that Arizona has chosen to offer certain types of companies in order to attract industries that will prove beneficial to the Arizona economy in the long term.
Camacho helped close on multi-billion dollar investments with businesses such as Taiwan Semiconductor Manufacturing Company (TSMC) and LG Energy Solutions. In an interview with AZ Business Magazine, he shared that Arizona has been part of a nationwide supercycle for the past five to six years of rapid expansion in advanced technologies. Camacho believes that that is largely due to Arizona’s pro-business climate, particularly because of the kind of tax incentives that Arizona has chosen to offer certain types of companies in order to attract industries that will prove beneficial to the Arizona economy in the long term.
In regards to becoming a Tier 1 market, Camacho says that because Arizona is a top three industrial market in the US right now, he remains optimistic going into 2023 and 2024. Though a tightening debt market may put a pause on the acceleration we have seen over the last decade, he believes that “we’re unequivocally on that path”.
A new tax credit incentive has been created by Arizona legislators for the film and television industry with the hope of drawing more production into AZ. Kyle Backer with AZ Big Media reported that the Arizona Motion Picture Production Program will begin in 2023, offering $75 million in tax credits and reaching a cap of $125 million. Credits are awarded as a percentage based on the total costs of production, with additional credits awarded for meeting certain criteria such as using Arizona labor, using a qualified Arizona production facility, and having a long-term tenant like a TV series.
In the past, Arizona has lost out on hosting big production opportunities, like the TV show “Breaking Bad”, to other states such as New Mexico and California because the incentive program was not as competitive. However, a pilot episode for a new TV series was recently shot in Tucson by J.J. Abrams, co-creator of “LOST” and director of “Star Wars: The Force Awakens”. Peter Catalanotte, director of Film Tucson, says that he thinks there will be more projects similar to that one once the program begins “based on the phone calls I’m getting from a lot of major studios who want to come to Arizona.”
Phoenix icon and community due to be revitalized
AZRE reported in late January that Metrocenter Mall, located in northwest Phoenix, has officially been acquired by Concord Wilshire Capital and TLG Investment Partners in partnership with Carl DeSantis’ CDS International Holdings Inc. The development group, along with international real estate firm, Hines, plans to redevelop and repurpose the mall into a community-driven, walkable village. The village will host residential apartments both for lease and ownership, boutiques, retail stores, a community park, and other entertainment venues.
The total cost of construction is expected to reach over $850 million as the village sits on 64.2 acres with over 2,600 multifamily units, 150K SF of commercial and retail space, and 4,100 surface and garage-deck parking spaces. The City of Phoenix is also investing approximately $150 million to build a Light Rail Station within the village which is currently under construction. The Station will directly connect to Downtown Phoenix, Phoenix Sky Harbor International Airport, ASU, and eastern communities.
Phoenix Mayor Kate Gallego commended the project, saying “Metrocenter has memories for so many of us in Phoenix. As we look to the future, Metrocenter now means jobs, attainable housing, and restoring community strength to northwest Phoenix.”
Chris Nieberding, President and CEO of TLG, also praised the development by saying, “Together, with the strong support of the city, including the construction of the Light Rail Station at our village, we are creating a one-of-a-kind community by addressing the needs of the community and integrating with the vision of the city”.
Rise48 Equity has completed $1.775 Billion+ in total transactions since 2019, and currently has $1.361 Billion+ assets under management, all located in the Phoenix MSA.