WESTERN SNAPSHOT, MAY 2004

Tucson Multifamily Market

The Tucson multifamily market pales in comparison to its Phoenix counterpart, with fewer projects under development and lower average rents. “The Tucson market continues to be a smaller and more thinly traded market than the metro Phoenix market to the north,” says Neil Sherman, vice president at Sperry Van Ness in Phoenix. “By way of comparison, in 2003 there were 71 properties of 20-plus units that sold in the Tucson market, versus 221 in the Phoenix area.” In addition, much of the focus in Tucson has been on single-family for-sale units, without many new traditional multifamily projects.

Of the projects that are being developed in Tucson, most are larger communities that offer residents an array of amenities. Current projects are being positioned to attract a younger client, ranging from ‘light’ blue collar to lower-end white collar residents, says Sherman. At these newer developments, loft units have become popular, but one-bedroom floorplans remain the most desired, representing 47 percent of all multifamily inventory, explains Sherman.

The development that is occurring — 3,281 units since January 2000 — is taking place in the northwestern and southeastern parts of the city, mainly because of the available inventory of residential lots and developable land. “The northwest has seen mostly retirement and more upscale projects and the southeast has focused more on first-time buyers and more affordable housing,” says Sherman. “Also, the downtown area should see more redevelopment as the city gives incentives to developers to come back to the area.”

Rio Nuevo is one of the most significant projects in downtown Tucson right now. Much of the approximately $360 million project is still in the planning stages, but the project will help bring new life to the area with a mix of retail stores, restaurants, residential housing and cultural venues.

Active developers in Tucson include JPI Development, The Wallick Company and Scott Homes. Local, independent builders, such as Emery Holdings and Verde Investments, are also developing in the area. Even a few non-profit organizations are involved in multifamily projects, including Community Services of Arizona and TMM Family Services.

The average rental rate for Class A properties in Tucson is $620; Class B is $530; Class C is $455 and Class D is $330. The overall average rental rate is $486. The lowest vacancy rates can be found in south Tucson where the airport (6 percent) and university submarkets (6.9 percent) have posted solid occupancy figures. Tucson Mountain Foothills (12.9 percent), Marana-Arva Valley (12.8 percent) and southwest Tucson (11.2 percent) are the areas experiencing the highest vacancy rates. Concessions are still being offered in almost all markets, ranging anywhere from 1 to 3 months of free rent on a 12- to 13-month lease. “Rental concessions continue to be impacted by record low interest rates and competition from single-family for-sale housing stock, and appear to be somewhat comparable in the Tucson and Phoenix markets,” says Sherman.

Over the course of the year, the northwest and southeast corridors are expected to grow, again due to the availability of reasonably priced land. The downtown Tucson market will also continue to attract new companies through its revitalization efforts.


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