Regional Activity


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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