Phoenix, Arizona
The Phoenix metropolitan area has long been among
the fastest growing areas nationally. Population
reached 3,379,000 as of July 2001, an annual gain
of 101,400 people, or 3.7 percent, since 1990. This
influx was driven by a dynamic economy based
on high-technology manufacturing, tourism, and
retirement services, gaining an average of 56,500
nonagricultural jobs annually in the 1990–2000
period. Since then, the collapse of the technology
boom has led to the layoff of thousands of workers
from some of the Valley of the Sun’s largest employers,
including Motorola, Intel, and Honeywell.
The national recession hurt business travel, and
air travel, tourism, and winter visitation suffered
significant losses beginning in the fourth quarter.
Employment gains slowed to 16,800 in 2001, a
1.1-percent increase, and essentially no growth
occurred for the 12-month period ending March
2002. Unemployment increased to 5.2 percent in
March from 3.2 percent a year earlier.
Some specific major developments under way will
foster renewed growth. Phoenix defense contractors
will benefit from the country’s military buildup,
including Orbital Science’s $900 million subcontract
from Boeing for booster rockets, Boeing’s contract to
produce hundreds of new Apache Longbow helicopters
in Mesa, and an expected $15 billion share for
Honeywell systems over the production life of the
planned new Joint Strike Fighter. Retail trade as well
as health and business services continue to expand
at a modest pace. The slowly recovering hotel and
lodging sectors will be enhanced by the completion
in November of the $300 million, 950-room Desert
Ridge Marriott golf course resort, which will be the
largest in the Valley, as well as the 750-room Westin
Kierland Resort.
On the rapidly expanding west side, construction
of the Surprise Center, a $110 million project combining
a baseball stadium and commercial space, is
under way, and construction of the $180 million
Phoenix Coyotes hockey stadium and surrounding
commercial development will begin soon. Over the
long term, the State is making a strong effort to
build a biotechnology industry cluster by aggressively
bidding for the International Genomics
Consortium and by planning with Arizona State
and the University of Arizona to build a joint medical
campus in downtown Phoenix. Building on
these and other developments in progress, a modest
recovery of employment growth is expected to
begin by the second half of 2002, accelerating to
more normal growth patterns in 2003.
In recent years, Phoenix builders enjoyed very
high levels of single-family productions and sales,
making the metropolitan area the Nation’s second
largest new home market. The Phoenix area absorbed
more than 35,000 single-family units annually in
the past 5 years, and 2001 saw 34,675 units permitted
in 2001 despite the slowing economy. The
Phoenix Housing Market Letter reported 7,454 new
home closings in the first quarter of 2002, up 4 percent
over the first quarter of 2001. The resale market
shared the bounty, recording 17,000 existing
homes sold during the quarter, an 8-percent gain
over the year-earlier period. The median resale and
new home sales price were approximately $132,000
and $164,500, respectively. Single-family permit
levels were just 3 percent lower in the first quarter
of 2002 than year-earlier levels. The slow local
economy will likely lead to a moderate further
reduction in 2002 permits from 2001.
The rapid job and population growth of the Phoenix
area in the 1996–2000 period supported an average
multifamily volume of 10,550 units annually. Rental
demand weakened in 2001 as the job market deteriorated
and doubling up increased. Many property
managers report that their strongest competition
is homeownership, especially for the more upscale
renter targeted by most new properties. Rental
vacancies have gradually increased to approximately
8 percent in the first quarter from 5.5 percent 2 years
earlier, and vacancies range from 9 to 11 percent for
some active submarkets. Asking rents have increased
2 to 3 percent on average in the past year. For many
properties, any nominal rent gains are offset by widespread
concessions. Properties with low- to midrange
units tended to perform better than those at the
upper end. The building industry cut back multifamily
permits by 24 percent (to 8,400 units) between
2000 and 2001 and to only 860 units in the first
quarter. With many new properties still under construction
or leasing, vacancies are expected to reach
9 percent before peaking. Some firming in market
conditions is likely later in the year and especially
in 2003 as employment rates increase.
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