Tucson’s Economy Starts to Turn Around
Looking for a secondary market for apartment investment? Tucson makes a strong case.
While Phoenix tends to get most of the attention from multifamily investors — the city has seen an 8% annual effective rent growth as of May — Arizona apartment buyers looking for opportunity should consider expanding their horizons southeast to Tucson.
According to research coming from the Economic and Business Research Center in the Eller College of Management at the University of Arizona, the city should see 1.7 percent job growth by year’s end.
George W. Hammond, Ph.D, director and research professor at the Economic and Business Research Center presented his findings at the Eller school’s annual economic forecast event earlier this June.
Tucson continued to expand at a modest pace last year, but recent results suggest a significant acceleration,” Hammond said. “Further, the forecast calls for recent momentum to build toward stronger performance during the next two years.
Most of the job gains are projected to be in education and health services, financial activities and professional business services — sectors with above-average wages. Smaller increases are expected to manifest in government, manufacturing, leisure and hospitality, information, and trade, transportation and utilities.
In terms of multifamily market fundamentals, the Tucson apartment vacancy rate has drifted downward by 40 bps over the past year to 4.4% — that’s the lowest level since year-end 1998 according to Reis data. As the chart below shows, rent growth has been sitting in the 2% range for the past four years, which is right in line with the nation’s average.
Limited supply is working in the market’s favor. During 2017 and 2018, Reis projects that a total of 143 new multifamily units delivered. With new household formations increasing 2.6% annually (enough to facilitate an absorption of 102 units per year), Reis predicts vacancy will decrease to 4.1% by 2020, while rents asking rents should increase 13% to $821 by then.