2019 Economic Forecast
At the Annual 2019, IREM/CCIM Forecast held January 24th, Elliott Pollack and a host of panelists gathered to discuss the state of the economy in Phoenix; what’s driving growth and will the trend continue.
We are in the second longest period of recovery and Pollack indicates we’re in the 8th inning. However, there are susceptibilities which can trigger a recession. While that term brings the potential for angst and disconcert, Pollack reminds us not all recessions are created equal. The most recent recession of 2007 to 2009 was a “once in 80-years experience” and not likely to occur again in our lifetimes. With no significant imbalance in need of correction, when it does happen, indicators point to a mild recession.
What is on the horizon for Arizona?
Arizona is 6th in the nation for job growth with the highest growth being Construction, Education and Health Services, Professional Business Services, Leisure and Hospitality, and Manufacturing.
The performance of the various sectors of real estate is a function of employment and population. Both of those indicators are looking strong for greater Phoenix.
Industrial development has been restraint over the last three or four years generally leading to controlled growth and low vacancy.
The completion of Loop 202 will have a significant impact on both the southwest and southeast valley by creating better access for the skilled workforce to traverse the two markets.
The office sector is enjoying significant growth in supply and rates, particularly along the freeway arterials of the southeast valley.
With the strength of the local economy, job growth and the influx of residents to the state, healthcare demands continue to increase. However, as this sector is vulnerable to legislation and reimbursements, there continues to be a drive to low-cost delivery with touch-points at every acuity from the patient’s home to the hospital.
Necessity-based retail such as nail salons, gyms, restaurants, and entertainment will continue to drive the need for bricks and mortar. These can’t be replaced by e-commerce. “Experience” retail is becoming a larger segment of the market.
Demand is outpacing supply. Local household formation is expected to be 47,000 to 48,000 each year through 2026. With new single-family home deliveries of 22,000 units last year and multifamily at 8,000 units, the household demand is exceeding the annual supply which is leading to a decline in vacancy and strong rent growth.
The theme of the Forecast can be summarized with the following highlights:
- Phoenix is the economical “back-office” alternative to the west coast
- Infrastructure and government incentives will continue to support growth
- The diversity of the industries create a strong and synergistic economy
- While a recession appears to be on the horizon, it is anticipated to be minor in terms of length and impact.
Participants in the local real estate market have indicated that while we may be in the 8th inning, this is likely a double-header with plenty of play left in the game.