Downtown Phoenix was like many urban cores across the country during the Great Recession. Dilapidated buildings served as the backdrop to an area infested with drugs, crime and homelessness. Employees rushed home to their suburban oases after work, leaving a ghost town in their wake. Locals shuddered at the thought of residing in downtown.
Fast-forward to present day and Downtown Phoenix’s narrative has changed dramatically. Fervent demand for housing in the urban core is keeping multifamily developers increasingly active. More than 4,500 units have delivered here since 2015, expanding inventory by nearly 18 percent.
After Tempe, the Downtown Phoenix submarket, which includes Midtown, has the most projects in the pipeline of any metropolitan submarket. Roughly 4,000 units were under construction at the end of September.
The new luxury units inundating downtown are leasing at a rapid clip. This year has been particularly strong as nearly 1,000 units delivered and more than 1,400 units were absorbed, compressing vacancies by 180 basis points. If this trend holds, it would be the first year vacancies have dipped since the construction boom began in 2015.
Downtown Phoenix has received around $5 billion in public and private investment in the past 12 years. The Metro Light Rail, the biggest mass transit project in the city’s history, has 20 stops running from Midtown to Downtown. The Phoenix Convention Center underwent a much-needed expansion and tripled in size, making it one of the biggest convention venues in the nation. Arizona State University, the University of Arizona and Northern Arizona University each have built campuses in downtown in the past decade.
The pivotal project in downtown’s evolution as a true live/work/play environment may have been CityScape. The mixed-use development’s first phase delivered a 27-story, 604,000-square-foot Class A office tower and 124,000 square feet of retail in 2010. Corporate tenants such as Alliance Bank and United Healthcare occupy large office spaces, as do a number of law firms. As part of the retail component, Lucky Strike Bowling Alley and Stand Up Live have given locals additional entertainment options.
The second phase brought a combined hotel and apartment tower in 2014. Kimpton’s Hotel Palomar occupies the first 10 floors and a total of 242 rooms, while CityScape Residences has 224 luxury apartment units on the upper floors.
Block 23, CityScape’s third phase, will deliver 230,000 square feet of creative office space, a 45,000-square-foot Fry’s Grocery and 300 apartment units. The third phase broke ground in the fourth quarter of last year and is slated to deliver in the summer of 2019.
Today, a buzz is in the air when you walk through downtown Phoenix. Old buildings have been replaced with high-rises and young professionals and students fill local bars and restaurants. According to the Downtown Phoenix Partnership, in the past decade about 100 new restaurants have been added, 12,000 live music and theater seats are in the area and 12,000 college and graduate students attend downtown campuses.
Multifamily developers will continue to play a large role in the ongoing transformation of downtown Phoenix. From Roosevelt Row to the Warehouse District, Millennials are driving a cultural shift toward urban living. This year’s uptick in apartment demand is a good sign not only for developers, but all of Phoenix.
CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets. |