Phoenix topped the nation as one of the hottest markets to watch in real estate for 2023, according to a newly released report by the Urban Land Institute and PwC.
The Phoenix metro ranked ninth in the nation and is considered a “magnet market” and “super” Sun Belt region along with other markets including Atlanta, Dallas/Fort Worth, Houston, Miami, San Antonio and Tampa/St. Petersburg. The metro has caught more international attention in recent years and attracted additional investors, development and businesses looking to expand or move to the region across all sectors.
“Everyone seems to be aware now that Phoenix is hot, literally and figuratively,” said Steve Lindley, advisory board treasurer for ULI Arizona district council and executive managing director at Cushman and Wakefield. “Our market used to be very dominated by our own growth, real estate, mortgage companies, construction — and 70% of our recent private sector economic growth has come from technology, health care, bioscience, advanced manufacturing, aerospace, financial services.”
Magnet markets are those growing more quickly than the U.S. average for population and jobs and are preferred for investors and builders, while super Sun Belt markets are large but affordable markets that are also attracting a wide range of businesses, the annual ULI and PwC US “Emerging Trends in Real Estate 2023” report said.
This year’s ranking is lower than Phoenix’s third highest in the U.S. last year, but the metro area still ranked in the top 14 markets in the nation for 2023. The ULI report found that more than half of the 20-highest rated markets in last year’s survey fell in rankings due to “normalizing,” or certain aspects of real estate returning to pre-pandemic patterns.
Out of the top 20 markets in emerging trends, ULI found that 14 of those were also located in Sun Belt cities. What those areas have in common is diversity, strong economies, affordability, a business-friendly environment and fast growth, Lindley said. The Valley also ranked 13th for homebuilding prospects compared to third overall in last year’s study.
The Phoenix metro has also attracted significant growth due to its growing talent and skilled labor force, Lindley said.
“Companies come here for the business-friendly environment, they know the demographics are high-growth, which is also in their favor and it’s affordable, but at the end of the day, they’ll go to a more expensive market or one that’s not quite as business friendly if they can get the people that makes their companies thrive,” he said. “What’s really shifted in Phoenix recently is our ability to train, attract and retain a highly educated talent that these companies need.”
Last year’s ranking was the first time in more than a decade that Phoenix ranked in the top 10 for real estate prospects. Another Arizona city that made the list was Tucson, which ranked 74. The report highlights evolving trends impacting real estate and lists 80 markets to watch based on overall growth, homebuilding, affordability and job prospects and 2,000 interviews with real estate professionals.
Although Phoenix and other Sun Belt markets were ranked in the top 20 this year, their rankings fell due to ongoing challenges with housing affordability, traffic and frustrations from longtime residents, the ULI report noted.
“[Housing affordability is] something we want to make sure that our city, metro area, state, really focuses on and doesn’t leave that behind. It’s one of our key attractions, is our affordability, but it’s one of our key challenges along with markets nationally … that goes away in a high inflation world,” Lindley said.
Inflation rates in Phoenix and other Sun Belt metros are also the highest in the country in part due to surging housing costs, the report said, adding that populations in super Sun Belt areas grew by an average of more than 5% since 2019, or four times faster than the rest of the nation due to rapid net in-migration. The Valley is still working to catch up with demand and Arizona’s housing deficit.
Cities that are growing too quickly due to an influx of people are also seeing strains on their infrastructure while trying to keep up pace with the increase in population. Cities across the Valley and other parts of the state have been working on solutions for water and power to support the projected growth of Arizona across all sectors amid an unprecedented drought and Colorado River shortages.
While the Covid-19 pandemic contributed to people moving to places like Phoenix, many people also moved away from states like California due to costs. Arizona was also one of the first states to recover all jobs lost in the pandemic, Lindley said, adding that some markets are just now catching up.
“We have delivered solid economic performance through thick or thin, through the tough times,” he said. “Our ability to recover quicker has probably been an attraction to these companies, because they’re looking for jobs, and higher employment, better talent here is going to attract the companies.”
While demand for housing continues, the Phoenix metro is also leading in the nation for construction and demand for data centers, self storage and industrial development. Despite a potential recession and slow down next year, Lindley said he expects Phoenix to have a strong recovery, while many experts expect the recession to be short-lived and “shallow,” ULI said in its report.
Climate change could also have a big impact on commercial real estate. ULI said the industry has to proactively address impacts of climate change on assets and that increasingly hotter climates or summers could impact where people want to live, energy costs and potential power outages. This summer, the Phoenix area saw as many as 450 heat-related deaths.
Phoenix and Dallas are also working with commercial real estate firms to reduce heat islands by expanding the tree canopy, adding reflective coatings or vegetation to roofs and using cool pavements to reduce heat absorption, the report said.
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Phoenix metro falls to ninth hottest real estate market in ULI, PwC report – The Business Journals
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