Greater Phoenix Blue Chip
RESIDENTIAL AND INDUSTRIAL OUTLOOK VERY STRONG, RETAIL AND OFFICE WILL SHOW MODEST IMPROVEMENT
Third Quarter, 2021
The outlook for most sectors of the Greater Phoenix real estate market remains very positive. Single family housing is projected to remain strong through 2023 as is the market for apartments. The commercial market outlook is more mixed with industrial expected to show strong growth in 2022 before slowing modestly in 2023 while the office outlook is expected to experience a continued period of very slow growth in construction and absorption in both 2022 and 2023. The retail sector is also likely to continue a period of very modest growth over the next two years.
The single family market is experiencing a period of very rapid permit growth at present. Strong underlying demand and an extreme shortage of existing inventory have pushed prices up rapidly. The Panel expects this to continue but at a slower pace as lack of product and affordability issues slow demand. After growth in permits of nearly 19% in 2021, permits are expected to increase by another 2% to over 35,000 units in 2022. and another 3% to over 36,000 units in 2023.
The apartment market is also facing very strong demand and a historically low level of supply at the present time. The Panel expects permits and absorption to be at a high level over the next two years, with vacancy rates remaining at historically low levels.
The office market outlook remains mixed with continued high vacancy rates expected through 2023. Spec construction is also projected to be relatively limited over the next two years, while absorption is expected to remain historically weak. The picture continues to be cloudy as the COVID induced “work from home” phenomenon has changed how people look at returning to a pre-COVID work environment. It remains to be seen how this works out, but clearly a much higher percent of pre-COVID office workers will be working from home.
The industrial market remains extremely strong, with both new supply and absorption expected to be robust through 2023. This will cause vacancy rates to continue to fall in 2021, 2022 and 2023.
The retail market, while improving due to a stronger economy and the need for more neighborhood retail centers caused by strong single family growth, will still be tepid by historic norms. Vacancy rates are expected to decline modestly over the next two years.