Phoenix and Tucson Rental Market Conditions - Q3 2023
Lots going on in the world and so, as always, real estate is responding in kind and so must we. Overall, while the market is still healthy, it is important to realize the updrafts from the market are coming to a close. Therefore, fortifying our current levels as much as possible through improved leasing practices and tenant-satisfaction centered operations should be our areas of focus.
Arizona Rental Data Breakdown - Pricing
Phoenix - Multifamily Rentals
Tucson - Multifamily Rentals
The rental pricing downshift in August, while steeper than average, was generally predictable. This is due to the fact that, for real estate, summer is over and the kids are back in school. The Phoenix 2022 graph above illustrates this perfectly. This movement is quite normal given the seasonal nature of rentals.
However, especially in Tucson, this downshift in rental price is notable and resembles the prices of past years. Keep scrolling and I’ll show you how this is happening.
In case you've ever wondered about Arizona's other macro economic factor...water.
Bob Collopy travels around to major areas of the southwest that are affecting Arizona’s water levels the most. Along the way he interviews an Arizona Senator, unveils an unbelievable deal with another country, and discusses how the drought plan between the states is currently drafted and who it affects.
Click Here or on the image to watch the video and read the blog!
Arizona Rental Data Breakdown - Supply + Demand
Quick note on these stats. Rental supply/demand and occupancy data is relatively spongy because the sources of the data tend to silo information so it’s inherently an incomplete picture. This data is also less scrutinized/verifiable than sales and property completions, in my opinion. Nevertheless it gives us a decent-enough benchmark.
Phoenix - Multifamily Rentals
Tucson - Multifamily Rentals
Vacancy rates are rising, albeit to more standard levels (6.3%)
….And this is partially why…construction completions for 5+ units are high in 2023. This is greatly due to the large supply gap that characterized the 2020’s period. So it’s the beginning of an equalization.
…And this equalization is not yet over since 5+ housing starts are essentially steady. That said I have strong doubts there will be any notable upticks in housing starts, likely more of a slowdown. That said this leading indicator will still be in effect for many quarters to come, creating a downward pressure on prices.
But why is my vacancy higher than 6.3% right now?
If the above is true for you there’s a large market factor at play right now; it’s August. This is the period where there’s the most movement of people between households. This creates a spike in current vacancies nearly every year, especially for multifamily properties, where the law of averages is more felt. This effect was somewhat muted last year given how imbalanced the market had become between supply and demand.
The second reason is related to the above. As I mentioned in the beginning, this occupancy data is skewed in nature. People tend to report “actual” occupancy, not “effective” occupancy and there’s a bias of when they report that data. Effective occupancy hovers closer to 9-10% in my experience. Effective occupancy takes into account the crucial turnover period.
How is the Single-Family Rental market performing?
Essentially the story is the same as multifamily. Here are the rental specifics:
Phoenix Housing Overview
Tucson Housing Overview
The main note for single family is that days on market have notably increased. Aside from market forces already explained, I believe one of the big reasons for this, especially in Phoenix, is because owners are not dropping the price. Therefore, the properties tend to sit. The reason for this price sticking behavior is partially because….
….of the incredible migration Arizona has seen for the past decade, which was only bolstered by Covid and most felt in Phoenix. So Phoenix owner’s are used to holding firm on price given the inflow. That said, the net migration is slowing. I wish I had more up to date data on net-migration, but I haven’t found a credible source for mid-late 2023. Nonetheless, the slower migration rate is clear. Before you see this as doom and gloom it’s important to note we are not a “whiplash” state: a state that grew during Covid then retracted back. Therefore the focus moving forward shall be….
Fortifying our current levels through improved leasing practices and tenant-satisfaction centered operations.
Given the increases in supply and the headwinds it seems we are heading for a broader market shift where property owners will be competing to maximize their rents while balancing the occupancy/vacancy rates as they move along. In order to be competitive in this sphere it comes down to the very simple idea that we have to evolve our advertising and reduce our turnover as much as possible in order to maintain current pricing and occupancy levels as much as possible….good thing I’ve been focusing on such an evolution for the past year!
Say Hello to the Listing + Program
If you’ve been with us the past year and are in Phoenix, then you’re already aware of this program. However, if you’ve been a client for longer or are in Tucson then this is something new.
Essentially, what it does is it improves the marketing materials for your property to the level you choose. It then takes those materials and puts it in front of more people through additional platforms, and can also provide a self-touring option for all verified applicants. All of this combined helps with leasing your property more quickly and at a more competitive rate.
*If you’re a multifamily owner and are using Rently in Tucson now, this is where that option came from!
What is Happening Next in FLR and What You Can Do.
If you didn’t know I, Bob Collopy, am the president of Fort Lowell Realty and am Jim Collopy’s son. I’ve been in the company essentially since birth and have been running the Phoenix branch for many years now and have been partially managing/improving Tucson operations from the marketing/tech side since 2014 in a limited capacity. In 2024 I will also be overseeing Tucson directly. Jim will be stepping down as designated broker, but with that said he will never actually leave FLR because he wouldn’t know what to do with himself otherwise.
Point being, I plan to roll out Listing+ as an option to all owners in Tucson when that transition happens in 2024. That said, because this program is already vetted through Phoenix, has a limited run in Tucson, and because of where the market is going I am making it to where you can request to be added to this program right now if you have a vacancy coming up this year! If you do, I’ll work with the managers to get you onboarded.
What that means is you will opt into the program. From there you can select some of the above options. You will notice that some of the options like professional photos (if your rents are above $2,350) are free, and the Rently self-show sentry boxes are included as well (also, because this stuff isn’t cheap, the free options assume you’re paying the more standardized leasing fee amounts).
Improved Tenant-Satisfaction
Happy tenants, on average, tend to stay longer. It is because of that basic truth that I am focusing on improving our operations in many ways. From improved software, better oversight through new positions, formalized training programs, to more trackable data that creates more clear accountability; I’ve been working on it. Much of these new operations, positions, and procedures are tested in the Phoenix branch and then, once vetted, some are rolled out in Tucson.
While going into the details of what I’ve been doing would make even a librarian cry from the boredom I will say all you have to do is see Phoenix’s star rating from its clients. You’ll see it’s pretty high! * knocks on wood *
These evolved operations, which were indeed created in part by a number of key people in both branches, will be more felt in 2024 for Tucson and Phoenix. I’m excited to tell you about them when that day comes!
Sales Corner
Roger Road Sold!
After lots of haggling and unexpected roof replacements (that were quite necessary) we were able to get this deal through and in line with what my client was hoping for.
Now he’s looking for a turnkey plex in Phoenix along with a few other buyers of mine for Tucson as well.
Bob Collopy - President
Bob has grown up in Fort Lowell Realty since he was a child ripping out carpets for turnovers. Since then, he has been instrumental in growing and evolving FLR.
-Ranked 6th top broker in Phoenix for total Sales Amount Sold.
-Five-time winner of the ASU-100 award for fastest growing company.
-Develops Permanent Supportive Housing for at-risk populations.
-Snowboards and writes stories whenever possible.