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March 2023 | Phoenix MSA Market Updates

March Exec Desk Phoenix Blog

Phoenix expected to remain near the top for multifamily investing continuing into 2023

With the first quarter of 2023 coming to a close, see where the Phoenix real estate market is expected to go in the coming year and why the Valley continues to rank in the top among the nation for population growth and industry innovation. Here we’ve compiled the latest articles on more company expansions into the Valley and why Phoenix is becoming an increasingly popular place to live.

What we can expect from the Phoenix market and the nation in 2023

In the last two years we have seen one of the most volatile periods for the Phoenix real estate market, but experts predict that that trend may change this year. Kyle Backer with AZ Big Media shared that, according to the S&P CoreLogic Case-Shiller Index, home prices in Phoenix rose 17.1% from August 2021 to August 2022. Stories of buyers competing with dozens of offers, often thousands of dollars over asking price, became all too common as people flooded into the metro area and demand for homes skyrocketed.

Now, however, as mortgage rates have risen, the buying frenzy has largely subsided. Andrea Crouch, president of Phoenix REALTORS, noted that prices are beginning to go down. “It’s simply a supply and demand issue,” she says. “The iBuyers have evacuated here, so that’s left actual owner-occupants to be the buyers, but the increase in interest rates has made it more challenging for them. That’s the reason we’ve seen that dip, but the bottom is not going to fall out by any stretch. It’s just turning into a more normal market, which is just fine.”

AZ Business Magazine reported that Phoenix ranked 2nd in the nation for home wealth gains as homeowners saw average home wealth gains of $256,600—an increase of 118%—in the past five years. The median home sales price in 2022 was $474,500 while there was a 99.5% change in home price appreciation and 14.8% 5-year annualized growth. Compared with the national outlook in 2022, the median home sales price across the country in 2022 was $368,000 with 5-year housing wealth gains of $155,400 since 2017—a 73.1% change in housing wealth gains. In addition, the nation saw a 58.5% change in home price appreciation and 9.7% 5-year annualized growth. The No.1 spot for home wealth gains went to Boise, Idaho while Salt Lake City, Utah came in third.

However, home prices are expected to fall 1.6% through December of this year according to economists and housing experts polled in the latest Zillow Home Price Expectation (ZHPE) survey. AZ Business Magazine reported that affordability challenges due to higher rates in February have slowed buyers’ enthusiasm, with Zillow’s latest in-house forecast predicting U.S. home values to be nearly flat, rising 0.2% over the course of 2023.

The Zillow economist and housing panel predicts that, starting next year, price growth will pick back up at an average of 3.5% per year through 2027, which is the same growth rate as the more stable 10-year period before the housing boom and bust cycle in the 2000s.

Company expansions bringing more industry diversity and jobs to the Valley

AZ Business Magazine reported that 400 new jobs will be coming to Chandler as SCHEELS, an employee-owned all-sports retailer, is planning to open its flagship store in September. The company currently hosts 250,000SF of retail space across more than 75 specialty stores and is looking to hire employee-owners who are passionate about the outdoors, sports, fashion, and customer service.

“At SCHEELS, our customers, our community partners, and our team of empowered associates are what’s most important,” said Chandler Store Leader Louie Sikich. “While we have a small SCHEELS team here already making our new home in Chandler, the majority of our associates will be hired locally. We can’t wait to expand our team and we look forward to welcoming many community members to our SCHEELS family.”

Phoenix is now hosting the U.S. headquarters for LandSolutions Inc., a company based out of Calgary, Canada. Phoenix Business Journal reported that the company, which operates in 12 U.S. states and has 250 employees across Canada and the U.S., has opened its new headquarters in the Camelback Corridor area of Phoenix. LandSolutions Inc. provides land services, land access, and right-of-way services for developments and projects in the energy industry as well as public infrastructure and telecommunication sectors.

When choosing the region for its headquarters, president and CEO Chad Hughes said the deciding factor was flights and access Phoenix offers to the company’s headquarters in Canada and its other locations in the U.S. LandSolutions Inc. said in a statement that Canadian companies currently employ about 146,000 Arizonans in the state, while there are about 210 weekly flights between Canada and Arizona. In addition, Hughes has been familiar with the area since 2011, having owned a home in the Phoenix and Scottsdale areas, as well as having a connection to CEO Glenn Williamson of the Canadian Arizona Business Council—an organization dedicated to strengthening trade between Canada and the U.S.

“Canadian companies are the largest foreign direct investors in Arizona by a large margin,” Williamson said in a statement.

The Valley will also be home to a new Dave and Buster’s location as the company that made the restaurant, bar, and arcade concept popular is opening its fourth Arizona location on May 15. Aayush Gupta with Phoenix Business Journal reported that construction began last summer on the 19,000SF entertainment center, located in the Queen Creek Marketplace in Queen Creek, and is set to hire 175 employees to meet demand. 

While many entertainment venues slowed during the pandemic, the demand for experiential dining is slowly picking back up. Dave and Buster’s Entertainment Inc. currently has three other Valley locations: one at Tempe Marketplace, one at Desert Ridge Marketplace, and one at Westgate Entertainment District in Glendale.

Tempe becoming a hub of innovation in the Valley

According to Ron Davis with Phoenix Business Journal, Tempe and Mesa have approved funding for a study on expanding the Tempe Streetcar. The Streetcar, which has been operational in Tempe since May 2022 and carried a price tag of $192 million in the first phase, may be expanding into Mesa by a 4.4 mile-long extension along Rio Salado Parkway from Rural Road to Dobson Road. The study is expected to cost around $2 million and will help Tempe and Mesa understand what is buildable and where the best places will be to place stops.

Sam Stevenson, senior transportation planner for the city of Tempe, said the study will kick off around late March or early April and he hopes to have the analysis complete by the summer of 2025 before stakeholders decide on a possible extension. Eric Iwerson, chief of staff for the Tempe mayor’s office and city council, said Valley Metro will work with the public and property owners located along Rio Salado, including major stakeholders like Arizona State University, Tempe Marketplace, Sloan Park, and Mesa Riverview among others.

“The idea is that we want to continue to strengthen public transit whether it’s the bus, neighborhood circulators or light-rail and streetcar,” Iwerson said. “We feel there’s strength in having a transportation system that gives options for everyone and certainly, public transit does that. … When we built this initial line, it was always anticipated, at least in Tempe, that this would be the ‘starter’ segment.”

Iwerson also added that Tempe is going to look for affordable housing developments throughout the city, particularly along rail and bus routes to provide an option of living without a car.

Arizona State University is furthering the innovative expansions in Tempe as it continues Phase III of its walkable, sustainable neighborhood, Novus Innovation Corridor. Located adjacent to ASU’s Tempe campus, it is designed to be a model for urban cities, encompassing 355 acres and over 10 million square feet of mixed-use development as a public-private partnership between the nation’s “most innovative university” and master developer Catellus Development Corporation.

Charley Freericks and Dr. Morgan R. Olsen with AZ Big Media shared that the Corridor will be home to 4.5 million square feet of premium Class A office space; 275,000SF of retail stores, restaurants, and entertainment options; over 4,100 residences; and upwards of 1,000 hotel rooms. ASU developed Novus Innovation Corridor as a live/play/work environment that would grant companies access to ASU’s world-class research and highly educated and skilled workforce in order to empower businesses of all sizes and become a major contributor to the state’s economic success.

Novus is expected to set the standard for green living by becoming the epicenter for transportation solutions, resource and utility usage, and responsible waste management. The Seidman Research Institute at ASU projects that Novus will generate $4.6 billion in annual economic impact and add 34,000 jobs by 2035 through office, hotel, multifamily and retail operations—in addition to the 20,000 temporary jobs it has supported in its construction.

Phoenix remains one of the best cities to invest in multifamily as it continues to attract new residents and businesses

According to Craig Ruiz with Chamber Business News, Arizona gained 80,000 new residents within one year and nearly $5 million in adjusted gross income—behind only Florida and Texas—while other states like California, Illinois, and New York lost nearly 600,000 taxpayers. One of the key factors in this growth was Arizona’s property tax rate which is lower than most states, including Texas and Florida. In a report by the National Taxpayers Union Foundation, Arizona was found to have the sixth-lowest tax burden out of any state.

Another major contributing factor was Arizona’s business-friendly environment which was in full swing at last month’s Waste Management Phoenix Open, where Governor Katie Hobbs and University of Arizona President Robert Robbins were among the guests of the InvisionAZ Summit, a gathering of the state’s emerging venture capital community. Roberts stated: “The rest of the country gets to see why we all want to live in Arizona”.

Additionally, expansions of international companies into Arizona, like the Taiwan Semiconductor Manufacturing Company (TSMC) plant in Phoenix, have also had a major effect in attracting new residents and increasing cultural diversity. The emergence of the new factory has attracted more Taiwanese, as well as other Asian, residents and has had ripple effects throughout the local community. Local business owners, like David Wang, owner of Ashari Bakery in Phoenix, have seen the growth in Asian residents saying,“I catch a lot of Asian customers. They say ‘This flavor is similar to a home taste, the way we make it,’”. Others in different industries, like Realtor Shelley Sakala said, “since I have a lot of listings here, I know in most cases who’s buying, and we have seen a lot of buyers from Taiwan and southeast Asia.”

Chandler airport gets approval for new improvements

 KTAR News reported that the city of Chandler approved more than $2.4 million in funding for airport improvement projects, including an extension of a taxiway, aviation market assessment, and pavement improvement at Chandler Municipal Airport. The city said in a press release that the first phase of the design will cover the extension of Taxiway B which will allow it to service an additional runway and will cost $2,035,200 of the total funds. The Arizona Department of Transportation funded work on the initial phase through an agreement.

The airport, which is owned and operated by the city of Chandler, is used primarily for training, business flights, hobby aviation, medical services and law enforcement. Chandler Municipal Airport is located south of the Loop 202 Santan Freeway about 18 miles southeast of Phoenix Sky Harbor International Airport.

Hospitality sector continues to thrive as Paradise Valley staple gets an upgrade

The Smoke Tree Resort in Paradise Valley is slated to be demolished as a new 82-room boutique hotel is planned to take its place. Ron Davis with Phoenix Business Journal reported that Walton Global, a Scottsdale-based real estate investment company, will be redeveloping the property to feature a bistro and a dinner-only, fine-dining restaurant. Restaurateur Matt Carter—partner of The Mission, Zinc Bistro and Fat Ox—will be overseeing the new eating establishments. Acquired at $14 million, the hotel is also planned to feature a centralized pool and amenity area as well as five guest casitas with private plunge pools.

Matt Keister, Executive Vice President at Walton Global, said in a statement: “I have lived in Paradise Valley for 15 years. The area deserves to see this once-grand property transformed into an upscale and welcoming resort and culinary experience that reflects the high standards of Paradise Valley, its residents and its visitors. We heard the same thing from the hundreds of residents who attended our two major public events to seek input about what should be done at Smoke Tree”.

Located on the southwest corner of Scottsdale Road and Lincoln Drive, the new hotel will be sitting just south of the $2 billion, 122-acre luxury master-planned community The Palmeraie in Paradise Valley.

Phoenix hotels are expected to see an average revenue per available room of $122.30 in 2023, an 8.5% increase from 2022, according to a CBRE Group Inc. report shared by Phoenix Business Journal. CBRE now expects Phoenix hotels to see the average daily rate for the market increase 3.2% year-over-year to $172.46. Additionally, CBRE predicts that 2024 will bring a 1% increase of revenue per available room to $123.56 and a 1% increase in average daily rate, with 2023 and 2024 hotel occupancy in Phoenix to be at 70.9%. The Valley’s growth in average daily rate is largely due to record-setting average rates that occurred almost every single month in 2022.

“The hotel market for the Phoenix metro continues to remain strong with increased demand supported by both leisure and corporate growth,” said Adrienne Andrews, a Senior Vice President at CBRE. “In 2022, despite the first quarter occupancy and demand being impacted by omicron, the year ended with revenues that exceeded peak 2019 by over 18%.” Overall, CBRE expects the U.S. to set a new record for revenue per available room in 2023.

Rise48 Equity has completed $1.88 Billion+ in total transactions since 2019, and currently has $1.44 Billion+ assets under management, all located in the Phoenix MSA.