Deer Valley: Phoenix's Fast-Growing Submarket Poised for Big Gains
Deer Valley is rapidly emerging as one of the hottest submarkets in the Phoenix metro area. Major employers and ongoing investment projects are fueling significant population growth. The crown jewel: Taiwan Semiconductor Manufacturing Company's (TSMC) colossal $65 billion microchip manufacturing facility. This development is set to turbocharge the region's housing demand and economic stature. Plus, Deer Valley’s relative housing affordability compared to other Phoenix areas makes it a magnet for renters.
Surge in Vacancy Rates Amid Rapid Development
In the last 24 months, tepid net absorption and a slew of new projects have pushed the multifamily vacancy rate from a low of 4.6% in early 2021 to 9.3% today. Annual rent growth has dipped to -3.5%, one of the worst in the Valley. However, during the pandemic, Deer Valley saw some of the steepest rent hikes, with average rents still over 25% higher than Q4 2019 levels.
Bright Future on the Horizon
Despite current setbacks, Deer Valley’s future shines bright. The submarket offers easy access to key employment nodes across the metro area at relatively affordable prices. Major transit routes, Loop 101 and I-17, provide quick commutes, making Deer Valley an attractive spot for large corporate offices like Honeywell Aerospace, Safeway’s corporate office, and PetSmart’s headquarters.
Investment Activity Remains Steady
Investor interest in Deer Valley has been robust since 2016. Although investment volumes hit a high in 2021 and early 2022, rising interest rates and weaker property performance have slowed activity recently. Over the past year, $545 million worth of apartments changed hands, a significant drop from the $1.1 billion annual average over the last three years. Expect transaction volumes to stay muted in the near term as buyers navigate higher debt costs and subdued rent growth forecasts. Newly delivered assets continue to attract investors.
Key Market Metrics
Availability
Vacancy Rate: 9.3% (Submarket) vs. 10.8% (Market)
Vacant Units: 3.4K (Submarket) vs. 42.4K (Market)
Market Asking Rent/Unit: $1,523 (Submarket) vs. $1,563 (Market)
Market Effective Rent/Unit: $1,506 (Submarket) vs. $1,541 (Market)
Concession Rate: 1.1% (Submarket) vs. 1.4% (Market)
Sales
Market Sale Price/Unit: $261K (Submarket) vs. $263K (Market)
12 Mo Sales Volume: $582M (Submarket) vs. $4.1B (Market)
Market Cap Rate: 4.6% (Submarket) vs. 4.8% (Market)
Inventory
Inventory Units: 35,926 (Submarket) vs. 391,328 (Market)
Under Construction Units: 2,199 (Submarket) vs. 32,074 (Market)
Long-term Outlook
Deer Valley’s robust connectivity and major investment projects ensure strong long-term demand. TSMC’s massive investment will create thousands of high-paying jobs, generating a ripple effect across various sectors, including housing, infrastructure, office, retail, and healthcare. Relocations driven by TSMC and related industries will keep the Deer Valley apartment market thriving.
Conclusion
Deer Valley’s multifamily market has faced recent challenges, but its strategic location, affordability, and major ongoing projects promise a bright future. Investors should watch this promising submarket as it continues to evolve and capitalize on its many strengths.
Second Revision
Deer Valley: Phoenix's Next Real Estate Hotspot
Deer Valley is on fire as one of the fastest-growing submarkets in Phoenix. Major employers and massive investment projects are driving explosive population growth. The highlight: Taiwan Semiconductor Manufacturing Company's (TSMC) monumental $65 billion microchip manufacturing facility. This project will supercharge the region’s housing demand and economic status. Plus, Deer Valley’s relatively affordable housing compared to other Phoenix areas makes it a top choice for renters.
Vacancy Rates Climb Amid Boom
Over the past 24 months, sluggish net absorption and a surge of new projects have pushed the multifamily vacancy rate from a low of 4.6% in early 2021 to 9.3% today. Annual rent growth has slumped to -3.5%, one of the worst in the Valley. Yet, during the pandemic, Deer Valley saw some of the steepest rent hikes, with average rents still over 25% higher than Q4 2019 levels.
Bright Future Ahead
Despite current challenges, Deer Valley’s future looks promising. The submarket offers easy access to key employment hubs across the metro area at relatively affordable prices. Major transit routes, Loop 101 and I-17, provide quick commutes, making Deer Valley a prime location for large corporate offices like Honeywell Aerospace, Safeway’s corporate office, and PetSmart’s headquarters.
Steady Investment Activity
Investor interest in Deer Valley has been strong since 2016. While investment volumes peaked in 2021 and early 2022, rising interest rates and weaker property performance have recently slowed activity. Over the past year, $545 million worth of apartments changed hands, down from the $1.1 billion annual average over the last three years. Expect transaction volumes to remain muted in the near term as buyers deal with higher debt costs and subdued rent growth forecasts. Newly delivered assets continue to attract investors.
Key Market Metrics
Availability
Vacancy Rate: 9.3% (Submarket) vs. 10.8% (Market)
Market Asking Rent/Unit: $1,523 (Submarket) vs. $1,563 (Market)
Market Effective Rent/Unit: $1,506 (Submarket) vs. $1,541 (Market)
Concession Rate: 1.1% (Submarket) vs. 1.4% (Market)
Sales
Market Sale Price/Unit: $261K (Submarket) vs. $263K (Market)
12 Mo Sales Volume: $582M (Submarket) vs. $4.1B (Market)
Market Cap Rate: 4.6% (Submarket) vs. 4.8% (Market)
Inventory
Inventory Units: 35,926 (Submarket) vs. 391,328 (Market)
Under Construction Units: 2,199 (Submarket) vs. 32,074 (Market)
Long-term Outlook
Deer Valley’s excellent connectivity and major investment projects ensure strong long-term demand. TSMC’s massive investment will create thousands of high-paying jobs, sparking a ripple effect across various sectors, including housing, infrastructure, office, retail, and healthcare. Relocations driven by TSMC and related industries will keep the Deer Valley apartment market robust.
Conclusion
Deer Valley’s multifamily market has encountered recent hurdles, but its strategic location, affordability, and significant ongoing projects promise a bright future. Investors should keep a close eye on this burgeoning submarket as it continues to evolve and leverage its numerous advantages.