Greater Phoenix Blue Chip

Third Quarter, 2018
Elliott Pollack

The third quarter Greater Phoenix Blue Chip gives us the first glimpse into 2020 from the forecast panel. This is important because we are at the point in the cycle where the expansion can be categorized as “old but strong”. At this point, some might suggest that the cycle could slow or end sometime over the next couple of years. Thus, the forecasts for 2019 and 2020 give us some insight into how the panel sees this issue.

Based on the results of the consensus forecast this quarter, analysts believe either that the expansion will continue into 2020, or, even if there is a slowdown, the real estate sector will be relatively unscathed because of it. In summary, the panel sees the following:

  • Single family permits are anticipated to continue to grow in 2018, 2019 and 2020. While the rate of growth will slow, there will be a larger number of permits in 2018 than in 2017, in 2019 than in 2018 and in 2020 than in 2019. If this occurs, it will be one of the longest periods of expansion in Greater Phoenix housing in history.

  • While the number of apartment permits is expected to slow very modestly in 2018, 2019 and 2020, all three years are projected to be very healthy in terms of permits.

  • Year-end apartment vacancy rates are expected to increase very modestly over the forecast period. Thus, vacancy rates will remain low by historic standards.

  • Spec office construction is expected to decline somewhat in 2020 after reaching a cyclical high in 2019. Absorption is projected likewise to continue to slow thru 2020. Vacancy rates are seen to stay fairly flat over the forecast period.

  • Only very low levels of spec retail construction are expected in 2018, 2019 and 2020 with less than one million square feet of spec retail built in each of the three years. Absorption will be higher than spec construction and vacancy rates are anticipated to continue to average about eight percent.

  • Industrial spec construction is expected to slow modestly in 2019 and 2020 after a strong 2018. Absorption is expected to show a slowing trend over the forecast period with significant declines in 2019 and 2020. Overall, vacancy rates are expected to climb in all three years. Yet, even in late 2020, industrial vacancy rates should remain relatively low.

No significant declines in absorption or construction are anticipated thru 2020 at this point. Indeed, the single family market is expected to continue to thrive over that period. If the panel turns out to be in the ball park, that is good news for real estate markets and for the economy as a whole.