Tucson Multifamily Report_4Q 2021

Research & Forecast Report

Tucson MSA Year End 2021 Multifamily Review Opaquely Crystal

After four years of interest rates being firmly fixed at 0%, in 2012, the Fed

Occupancy rates hit another record high increasing 100 bps over-the-year to

introduced the “Dot Plot” system into their arsenal of policy tools. The dot plot

97.7% and besting the previous all-time occupancy high of 97.2% set in Q3

system allows the Fed’s 18 members to communicate to the market where,

2021.

they believe, interest rates will be now to several years into the future. As of December 15, 2021, 2 of 18 Fed members believed the Fed Funds rate would

There are 674 units currently under construction throughout Greater Tucson

be above 1.00% by YE 2022 with all 18 assuming rates will be above 1.00%,

which marked the first time since Q2 2019 that the number of units under

but not higher than 2.50%, by YE 2023. For the Longer-Term outlook, only 2

construction was below 1,000.

of 18 believe interest rates will hit 3.00% by sometime, anytime, after 2024.

(Continued)

Summary According to the BLS, Tucson MSA has gained back 92% of March/April 2020’s job losses.

The Tucson MSA continues to be a nation leader in year-over-year rent growth rising 23.1% to $1,094. This growth rate is substantially higher than the National average which increased 14.6%, but still $546 below the National average rent of $1,640.

Investment sales volume significantly increased to $1.196B, with an average PPU (Price Per Unit) increasing 44% to $155,996.

Employment Overall, from May 2020 to December 2021, Tucson was #9 in the Sun

Nonfarm Losses Gains Employment Mar 20 - Apr 20 May 20 -Dec 21 US Nonfarm (millions) -22,362 18,790

% Recouped 76%

Arizona

Belt with 92% of total jobs recouped and just ahead of both Houston and

Phoenix

-242,800

300,600

124%

Albuquerque’s 88%. Tucson registered a 2,700 increase, or +0.7% m/m,

Tucson

-44,300

40,600

92% 125%

Florida

year-over-year Tucson witnessed a 4.0% increase.

Jacksonville

-82,700

103,200

Orlando

-206,700

138,000

67%

Tampa

-170,900

201,000

118%

Miami

-449,000

386,900

86%

396,300

104%

Total nonfarm payroll jobs as of December 2021 is 393,800, or 1.2%, or 4,700 jobs off peak employment of 398,500 in December 2019. If the

Georgia

current recovery holds, employment normalization should be achieved

Atlanta

by H1 2022.

-381,500 Texas

Houston

-361,400

316,700

88%

DFW

-425,400

538,500

127%

San Antonio

-131,100

146,100

111%

Austin

-137,000

186,200

136%

98,800

151%

Utah Salt Lake City

National Rent Payments

-65,500

RENT PAYMENT TRACKER (% COLLECTED) National

Tucson (est)

According to the National Multifamily Housing Council (NMHC)’s Rent Payment Tracker, market-rate apartment rent collections saw its lowest reading for the month ending December, decreasing 180 bps over-theyear to 92.0%. For Tucson, estimated rent collections have generally re-

95.9%

93.6%

mained above 94%+ since March 2020 to its current 94.5%.

Oct’20

Rent/Occupancy Average rent for Greater Tucson was up a staggering 23.1% yearover year to $1,094 and up over-the-quarter by 4.1%. Occupancy for the region was 97.7% or 100 bps higher year-over-year. This marks the 10th consecutive quarter occupancy has been above the 5-Year Moving Average of 95.4%.

Since 2018, over-the-quarter rent growth has averaged 2.6% for Tucson as a whole. Class A has averaged 2.6%, Class B at 2.4%, and Class C at 2.1%. Asking rents in Class A buildings increased 18.9% year-over-year to an average of $1,367, which is $273 higher than the market average. Class B and C properties witnessed 22.7% (to $1,047) and 13.8% (to $851) year-over-year rent increases respectively with neither contracting over-thequarter.

95.4%

95.0%

94.8%

Nov’20

93.8% 93.8%

Dec’20

93.0%

Oct’21

94.5% 93.1%

Nov’21

94.5% 92.0%

Dec’21

AVERAGE RENT | OCCUPANCY (Q1 2017 - YTD)

Pre-Lease Absorption

Construction Planned Development reached a current cycle high increasing 52% year-

Pre-lease absorption rates ended YE 2021 with an average of 10 units

over-year to 2,269 units. Actual projects under construction decreased

per property per month. Based on the average number of units under

(49%) in over-the-year readings to its current 674-units.

construction per property, which is 169, and assuming 90% occupancy for stabilization; current delivery-to-stabilization period is hovering around

Occupancy remains significantly elevated at 97.7% which is 230 bps above

15-months which is below the 18-to-24-month stabilization rubric used

the 5-Year Average and the highest reading ever recorded. Assuming all

by developers. Since 2020, months-to-stabilization has averaged 9

1,000 units that are projected to be completed by end of 2021 were de-

months which suggests that demand will continue to outpace supply in

livered vacant, occupancy would still be above 95%.

the near-to-medium terms.

MULTIFAMILY CONSTRUCTION (50+)

AVG. PRE-LEASE ABSORPTION RATE/PROPERTY (Q1 2020 TO YTD)

Investment Sales (100+) (100+) AVG. PRICE PER UNIT (PPU)

BY VINTAGE As of 12/30/21 the 10-year treasury sat at 1.51% compared to 0.92% as of 12/30/20 or 59 bps increase year-over-year.

YE 2021 Summary of Multifamily Sales (100+ units)

Top 3 Transactions (Market Rate, Non-Student/Senior, Q3 Only)

Transactions: 34 sales (up 143% y/y)

1. Mariposa Portfolio: $106,254,110 | $140,921 per unit | Closed 12/29/21 | Yr Blt Various

Total Sales Volume: $1,196,335,995 (up 67% y/y)

2. Desert Shadows: $69,300,000 | $205,030 per unit | Closed 10/04/21 | Yr Blt 1985

Average Price/Unit: $155,996 (up 44% y/y)

3. Yardz on Kolb: $65,500,000 | $159,756 per unit | Closed 12/31/21 | Yr Blt 1972 Colliers International

3

Permits MF & SFR

ANNUAL RESIDENTIAL PERMITS (2000 TO Q4 2021)

Combined Trailing 12-month permit levels, which includes both single family and multifamily permits, increased 5% to 1,381. Despite generally increasing permit levels, total permits for 2021 were 6,039 or 47% below the previous market peak of 11,323 units in 2005. Projected 2022 permits counts are expected to be approximately 6,500.

SF Permits

MF Permits

12,000 10,000 8,000 6,000 4,000 2,000

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Outlook – Opaquely Crystal Total US Nonfarm payrolls increased by 199,000 in December, compared with

As John Mauldin, from Mauldin Economics, states, “one consequence of inflation

the Dow Jones estimate of 422,000. The unemployment rate dropped to 3.9%,

is that it pushes “real” interest rates lower… If the Fed follows recent practice

better than the expected 4.1%. Since May, U.S. nonfarm employment has re-

and raises rates a quarter point at each meeting starting in mid-2022, it might

couped 84% (18.790M) of the job losses stemming from Covid. According to the

add up to a 1.25% hike by the end of next year….[and] will still leave negative

BLS, Tucson MSA has gained back 92% of March/April 2020’s job losses. Given

real interest rates of -3%...But would markets tolerate anything tougher? Proba-

the current recovery rate, Tucson is expected to fully recover sometime in H1

bly not…Most obviously, higher rates would raise borrowing costs for the biggest

2022.

borrower of all, the US Treasury. The debt has reached a size at which even tiny rate increases add big bucks to the government’s bill.”

In August 2020, the Fed moved to essentially re-write its mandate, i.e. letting inflation run higher than 2% which, at the time, untethered it from all historical

Given that as a backdrop, it would seem continued Government and Federal Re-

regimes. Essentially, the Powell Fed bet they could ignite, and control, inflation

serve interdictions in the market will not only continue, but accelerate, despite

in the meaningful, but manageable, 4 to 5% range. Less than two years later,

statements to the contrary. If that is the case, then would seem to me that we are

Powell, coupled with the Pandemic and all its deleterious effects, certainly man-

much closer to negative interest rates, now, that at any point in our history. Since

aged to jumpstart inflation with the average, annualized, monthly reading of

the 1950s, the Fed has had to adjust rates an average of 500bps lower during a

6% throughout 2021. Inflation, now, is so high that we are running close to the

recession and, according to the current ordering of dot plots, absolutely no one

hyper-inflation days of the late 1970s/early 1980s.

on the Fed sees short term rates rising above 3.00%.

Thomas Brophy Research Director | Arizona +1 602 222 5057 Thomas.Brophy@colliers.com

Colliers international | Arizona 2390 E Camelback Rd. Ste. 100 Phoenix, AZ 85016 +1 602 222 5000

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