UA forecast calls for rebound in Valley housing market this year

by Peter Corbett - Apr. 15, 2010 The Arizona Republic

The Valley's new-home market is on its way to recovery, according to a University of Arizona forecast.

The UA Economic and Business Research Center report predicts that new-home permits in metro Phoenix this year will jump 54 percent from last year to 13,320. Then, permits will more than double to 28,060 next year.

That is still a long way from the Valley's peak building years of 2004-05 when close to 60,000 new homes were built in each of two straight years.

The university's forecast predicts that new-home permits will fluctuate from 35,000 to 40,000 annually from 2012-16.

That would appear to be a more sustainable number than 60,000 permits annually, especially with the Valley's expected population growth.

Cassidy Turley/BRE Commercial, in its latest Phoenix Housing Market Report, notes the metro area will grow from 4.2 million this year to more than 5 million in 2015.

Longer term, Arizona is expected to grow to 16 million by 2050. That is up from 5.1 million in the 2000 census.

Cassidy Turley's report also notes some strengths as well as concerns about the Valley market, including foreclosures, job losses and low appraisals of homes.

On the plus side is affordable housing. Six out of 10 homes sold in the fourth quarter of 2009 were affordable for families earning the Valley's median income. That is much better than in California but less affordable than in other Sun Belt markets, such as Albuquerque, Dallas and Houston.

Office market coming back
The Valley's office market is on it way to recovery, but it has a long way to go, according to a first-quarter report from CB Richard Ellis.

Office vacancies in the quarter were up nearly 3 percentage points from a year ago to 25.6 percent. That is the highest rate in 19 years.

Plus, the vacancy rate has been climbing for 11 consecutive quarters.

But for the second straight quarter, the office market has had positive net absorption, meaning that new tenants have taken more space than have been lost by tenants leaving office buildings.
Office development, meanwhile, has come to a halt.

Scottsdale vacancies high
Scottsdale's office vacancy rate is 28.4 percent, nearly 10 percentage points higher than downtown Phoenix's rate.

However, Greg Mayer, CB Richard Ellis senior associate, said Scottsdale is on the rebound.
"It's arguably the hottest submarket we have," he said. "Vacancies are high but have been falling for three quarters."

Scottsdale had net absorption of 315,570 square feet of office space in the first quarter. Only Phoenix's central business district had more absorption at 438,725 square feet.

Among the major new tenants in Scottsdale are the global shipping company APL and Yelp, an Internet site that allows consumers to review businesses.

APL took 70,000 square feet at the Max at Kierland building, 16220 N. Scottsdale Road. Yelp is leasing 28,000 square feet at the Galleria Corporate Centre, 4343 N. Scottsdale Road.
Scottsdale's average lease rate was $23.62 per square foot, slightly higher than the Valleywide rate of $23.36.

Mayer said tenants should be locking in their leases.
"You don't want to be late to the market," he said.