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Posted Mar 12, 2024, 6:02 PM
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Registered User
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Join Date: Oct 2015
Posts: 2,235
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Quote:
Originally Posted by Obadno
Can somebody post the text: https://www.bizjournals.com/phoenix/...-concerns.html
Also, can somebody int he news industry outlaw the phrase "some experts say" 
I am going to assume the conclusion and say NO we are not at risk of overbuilding, apartments downtown are too expensive for the local market, the decrease in rents due to oversupply is good. |
Here:
Quote:
About 2,400 apartment units are under construction in downtown Phoenix, putting the submarket in danger of being overbuilt.
Developers have been ramping up apartment construction throughout Phoenix for the past several years, which is causing real estate experts such as Peter O'Neil, research director for Northmarq, to expect a peak in new rental construction in 2024.
"As far as the potential for overbuilding is concerned, I think that is a valid concern in downtown, just like it's a legitimate concern in nearly all of the submarkets in the Phoenix area at least in the near term," O'Neil said.
Northmarq is forecasting 20,000 units to come online in 2024 across the region, with downtown Phoenix accounting for about 1,200 units, he said. However, O'Neil is forecasting a sharp decline in multifamily permitting and construction starts in 2024.
"So we'll overbuild in the short term and then demand should catch up with supply in the next few years as we slow the pace of new construction," he said.
Christine Mackay, economic development director for the city of Phoenix, counts nine cranes outside her office window in downtown Phoenix. That's a far cry from the 20 cranes she saw in November 2020 during the height of the global pandemic, which was up from 14 cranes in January 2020.
Answers on X Phoenix's stalled downtown project
The Phoenix area has one of the most aggressive new construction pipelines in 10 to 15 years, said Bruce Hanley, vice president of Commercial Properties Inc. in Tempe.
Within a three-mile radius of the 85004 ZIP Code in downtown Phoenix, Hanley counts 32 properties either under construction or proposed.
"Everybody now wants to get in on the action in downtown and around Phoenix," he said. "But you also have some construction projects that are faltering, that they've ceased construction on."
One apartment project that spans an entire city block downtown came to a screeching halt last fall, causing a flurry of mechanics liens against the project.
The second phase of X Phoenix, a 29-story luxury residential tower with 592 beds at Third Avenue and Van Buren Street, has racked up nearly $50 million in mechanics liens since October 2023, including $35 million from general contractor Clayco Inc.
Chicago-based X Cos. secured a Government Property Lease Excise Tax, or GPLET, through the city of Phoenix, to abate property taxes while the project is under construction. That means the city currently owns both phases of X Phoenix, Mackay said.
"They're working diligently right now on some new funding," she said. "I believe it will be back under construction by summer. The market got a little goofy on financing, and this is a project that got caught up in financing. It will be back by summer."
X Cos. could not immediately be reached for comment on this story.
Mackay said she doesn't expect to see 20 cranes in the air again within the next few years.
"That's what the market is supposed to do," she said. "Pause, take a breath, let's catch up. Sometimes, when we force the market is when we start to have problems."
'Weird market': Rent growth is now flat, and transactions are down
While year-over-year rent growth between 2020 and 2022 was 20%, rent growth is now flat, Hanley said. Plus, multifamily sales/transaction volume was down 72% from 2022 to 2023.
"This is a weird market right now," Hanley said. "Are we overbuilt right now? Probably. It's called absorption, where demand keeps up with supply. Right now that's kind of off."
These changes to the multifamily market come at a time when the state's second largest publicly traded company plans to vacate eight stories of its downtown Phoenix tower. Freeport-McMoRan Inc. (NYSE: FCX) is preparing to sublease its 250,000-square-foot global headquarters office in the 26-story Freeport-McMoRan Center at 333 N. Central Ave. in downtown Phoenix.
Mackay said she's glad the company will still have offices at the Cotton Center in Phoenix.
"But that's eight floors of new and modern office space, which is easier to bring tenants," she said, adding that she's also seeing activity and interest in the former Chase tower across the street.
Freeport McMoRan accounts for a small percentage of the overall workforce in downtown Phoenix, somewhere between 1% and 2%, O'Neil said.
"Typically, I don't think one move in particular is going to result in a significant impact on submarket vacancy or performance, especially in a dense area like downtown Phoenix," O'Neil said. "Not all of the people who work in Freeport's office rent. And even if they do rent, it doesn't mean they rent in downtown Phoenix. I imagine the company employs a mix of homeowners and renters, and that the employees are located in downtown and the Phoenix suburbs."
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