Phoenix, Arizona: Economic and Investment Overview

Another banner year is anticipated for Phoenix.

In a recent survey of commercial real estate investors, Phoenix was ranked as a top target, securing the 8th spot among the most preferred U.S. metros, according to CBRE’s 2023 U.S. Investor Intentions Survey. ^[1]As one of the most populous cities in Arizona, Phoenix plays a pivotal role in the state's real estate market. In 2024, Phoenix's population reached 4,777,000, marking a 1.27% increase from 2023.^[2] As one of the fastest-growing cities in the country, the greater Phoenix area is teeming with opportunities.

The city's diverse and expanding population attracts a myriad of businesses and residents. From high technology to education and health services, let’s explore some of the key industries flourishing in Phoenix.

Phoenix’s Recent Developments 

Phoenix has been experiencing steady economic growth for decades, and recent trends suggest this will continue. Here's a breakdown of some key factors driving this growth:

Economic Diversification

Gone are the days when Phoenix was merely a construction boomtown. Unlike the prolonged recovery after the Great Recession, Phoenix metro has outpaced other competitive metros in recovery post-pandemic.  

Source: Hachman Index

Phoenix has experienced significant economic development over the last decade, transitioning into a diverse and welcoming economy. Today, it is recognized as a burgeoning nexus for technology, medical, and high-tech manufacturing sectors. This evolution efforts to grow the metro area have gone beyond traditional demand drivers like the state government, Arizona State University, and the construction industry. 

Growing Employment

Source: U.S. BLS, Local Area Unemployment Statistics

Business-Friendly Environment

• Lower costs: Compared to other major cities, Phoenix offers a lower cost of living and doing business, attracting companies looking to expand or relocate.^[3]
• Positive business climate: Arizona is known for its supportive environment for businesses, with streamlined regulations and tax incentives.

Metro Phoenix as a Top Investment Market

Metro Phoenix is ranked No. 2 among U.S. areas to watch for growth^[4], commercial real estate development, and investment in 2024.

Key Investment Highlights in Phoenix

• VAI Resort: A $1 billion investment creating a 60-acre resort ^[5] oasis in Arizona, scheduled to open in 2024. The resort will feature a state-of-the-art $40 million VAI stage for live music and concerts, more than 1,100 rooms, suites, and villas, and various entertainment and dining options.
• Semiconductor and Tech Investments:
  • Taiwan Semiconductor Manufacturing Company (TSMC) is constructing two semiconductor plants with a total investment of $40 billion^[6], expected to create over 10,000 jobs by 2024 and 2026.
  • Intel's $20-billion expansion ^[7] at its Chandler campus.
  • LG Energy's $5.5 billion investment ^[8] in a new battery-manufacturing plant in Queen Creek, operational by 2025.

• Mayo Clinic Expansion: A $135-million^[9] research building as part of a $748-million expansion doubling the size of the North Phoenix campus and adding 2,000 high-wage jobs by 2024.

Overall Quality of Life

• Climate and recreation: Phoenix's sunny climate and abundant outdoor activities make it an attractive place to live, drawing in new residents and businesses alike.
• Hospitality Sector and Major Events: The hosting of the Super Bowl in 2015 and MLB Spring Training, along with other major events, significantly boosted the hospitality sector in Phoenix. By 2022, occupancy in Phoenix's hospitality sector rebounded to 97% of the 2019 level^[10], with Average Daily Rate (ADR) and Revenue per Available Room (RevPAR) surpassing pre-pandemic levels. 2023 continued this positive trend, further strengthened by the full-capacity return of MLB Spring Training and the presence of the Super Bowl.

Will 2024 dawns with promise for Phoenix Real-Estate? Let’s find out 

Phoenix is the capital and a major hub for business and tourism in the Southwest^[11]. It boasts a strong real estate market with a diverse range of housing options, making it an attractive option for both personal and investment properties^[12]:

• Population: 1,660,000

• Change in the population (since 2020): 1.56%

• Home value: $394,870

• Change in home values (5-year): 70.3%

• Median rent: $2,199

• Rent change (year over year): 1.0%

With a strong population base, rising home values, and a strategic focus on multifamily units to cater to the city’s growing demand, Phoenix is setting the standard for urban growth and investment appeal.

Investment share of Multifamily in Real Estate, U.S. (2023 Investor Intention Survey)

Source: CBRE: 2023-us-investor-intentions-survey.pdf

Demand & Supply

For the first time in many residents’ lifetimes, metro Phoenix is poised to deliver nearly enough multifamily units to meet annual demand. The projections for 2024 make 2023 look like a warm up lap. Phoenix could nearly double its delivered unit count with an estimated 33,817 ^[13] expected this year.

Having spent several years where units delivered equaled around half the number needed to meet demand in any given 12-month calendar cycle, the massive spike in demand during and after the pandemic, coupled with still exceptionally low-interest rates, finally fueled developers to start churning dirt and building in significant volumes. Phoenix had an unemployment rate of 6.5% in 2020 when more than 9,000 of the city’s residents filed for bankruptcy. Phoenix’s unemployment rate has since dropped to 3.2%. The state’s economy grew by 6.3% in 2021,^[14] the most in 16 years.

Source: Real Page Market Analytics

Forecast and Future Outlook

HVS forecasted occupancy in Phoenix to stabilize in the upper 60s in 2023 and rebound to around 70% in 2024, similar to 2018/19 levels. ADR growth is expected to be strong in 2024, notably above the national forecast, and remain stable in 2024 despite the absence of events like the Super Bowl.

Conclusion

Phoenix's robust economic transformation, driven by a combination of diversified commercial growth, significant investments in the tech and hospitality sectors, and proactive city planning, places it in a strong position for continued growth and investor interest. The city's ability to attract major events and key industries, alongside its commitment to developing its real estate market, underscores its potential as a top market for investment and economic development in 2024 and beyond.

Learn more about why to invest in multi-family real-estate? Let's talk!

1. CBRE (January 9, 2023) [https://www.cbre.com/insights/briefs/2023-us-investor-intentions-survey-less-investment-activity-expected]
2. Macrotrends [https://www.macrotrends.net/global-metrics/cities/23099/phoenix/population]
3. bestcompaniesAZ (July 26, 2023) [https://bestcompaniesaz.com/why-global-corporations-are-moving-to-arizona/]
4. YaahooFinance (November 21,2023) [https://finance.yahoo.com/news/metro-phoenix-top-market-watch-130254706.html#:~:text=Metro]
5. PRNWire (April 26,2023) [https://www.prnewswire.com/news-releases/vai-resort-to-debut-in-2024-arizonas-largest-and-boldest-hotel-entertainment-and-culinary-destination-301808277.html]
6. TSMC (December 06,2023) [https://pr.tsmc.com/english/news/2977]
7. intel.newsroom (October 18, 2023) [https://www.intel.com/content/www/us/en/newsroom/news/arizona-expansion-marks-construction-milestone.html]
8. QueensCreekAZ (March 24,2023) [https://www.queencreekaz.gov/Home/Components/News/News/12776/13#:~:text=The new cylindrical battery manufacturing, by a Korean battery manufacturer]
9. BizJournals.com, Author- Angela Gonzales (March 01, 2023 [https://www.bizjournals.com/phoenix/inno/stories/news/2023/03/01/mayo-clinic-phoenix-biotech-hub.html]
10. STR (February 27,2023) [https://str.com/data-insights-blog/phoenix-hotels-achieved-second-highest-super-bowl-weekend-adr-and-revpar]
11. AZBigMedia (September 10,2023) [https://azbigmedia.com/business/phoenix-ranks-as-the-7th-best-startup-city-in-america/]
12. Norda Real-Estate Market, Author Marco Santarelli (March 26, 2024) [https://www.noradarealestate.com/blog/phoenix-real-estate-market/]
13. Norda Real-Estate Market, Author Marco Santarelli  (March 26, 2024) [https://www.noradarealestate.com/blog/phoenix-real-estate-market/]
14. cnbc.com, Author Emma Kinery, (December 6, 2022) [https://www.cnbc.com/2022/12/06/tsmc-to-up-arizona-investment-to-40-billion-with-second-semiconductor-chip-plant.html]