North Scottsdale: From Luxury Haven to a Market in Flux
North Scottsdale, known for its opulent lifestyle, luxury shopping, and world-class resorts, has long attracted an affluent crowd. This upscale rental market boasts the highest rents in the Phoenix metro area, with an average asking rent of $2,080 per month, a whopping 35% above the overall market level.
Steady Move-Ins Amid Rising Vacancies
While other parts of the Valley saw negative absorption in 2022, North Scottsdale maintained steady move-ins. However, 2024 has brought a flood of new deliveries, pushing the vacancy rate to 10.2%. This spike could persist with more supply on the horizon, particularly in the Kierland area, where several luxury complexes are entering the lease-up phase simultaneously.
Office Hubs and High-Wage Residents
North Scottsdale isn't just about luxury living; it's one of Phoenix's premier office hubs. Major employers like CVS Caremark, American Express, and Vanguard bring thousands of high-wage jobs to the area. These demand drivers have spurred a wave of development, with approximately 2,600 units currently under construction, set to expand the submarket's inventory by 14.3%.
Investors Eyeing Quality Assets
Historically, out-of-state investors have targeted North Scottsdale for its high-quality assets. However, elevated interest rates and a weaker market outlook have slowed transaction activity. Despite this, about $403 million worth of apartments traded in the submarket over the past year, driven by several high-dollar deals.
Vacancy Rate: 10.2% (Submarket) vs. 10.8% (Market)
Market Asking Rent/Unit: $2,081 (Submarket) vs. $1,564 (Market)
Concession Rate: 1.7% (Submarket) vs. 1.4% (Market)
The Vacancy Surge
North Scottsdale's vacancy rate, currently at 10.2%, reflects the influx of new units. Historically, the area saw new housing focused on condos and single-family homes. But the past decade has brought 6,200 new rental units, and developers remain active, promising more supply-side challenges ahead.
Rent Dynamics: A Luxury Market Under Pressure
North Scottsdale's rents are the highest in Phoenix, averaging $2,080/month. But after record growth of 22.9% in mid-2021, rent growth has stalled, turning negative at -2.7% over the past 12 months. The area’s high-end product commands some of the highest rents in Arizona, with new developments like Optima Kierland and The Residences Kierland pushing the envelope.
Despite high incomes, with average rents taking up about 25% of median household income, the recent rent stagnation is tied to increased competition from new supply.
Construction Boom: Luxury Leads the Way
The construction pipeline in North Scottsdale is booming, with 2,100 units delivered in the past three years and another 2,600 underway. Much of this new supply focuses on luxury products, adding to an already deep pool of high-end rentals. The Kierland area, home to luxury shopping destinations Kierland Commons and Scottsdale Quarter, has been a hotbed of development.
New projects include The Manor Scottsdale, The Quincy at Kierland, and Soltra at Kierland, all 4-star quality, and within 1.5 miles of each other. The largest project in the pipeline, Modera Kierland, is set to deliver 438 units and high-end amenities by spring 2025.
Investment Landscape: Navigating the Storm
North Scottsdale has seen substantial investment activity, but elevated interest rates and a weaker outlook have taken a toll. Recent deals have traded at significant losses compared to prior valuations, highlighting the challenging landscape.
IMT Residential recently paid $96 million for Hadley North Scottsdale, a 4-star mid-rise, at a steep discount from its previous sale price of $145 million just two years earlier. Similarly, Goodman Real Estate's acquisition of Scottsdale Grand at $117 million represents a 10% loss in value over three years.
Looking Ahead: Challenges and Opportunities
The road ahead for North Scottsdale is fraught with challenges. High interest rates and tepid property performance are significant headwinds. Yet, the area's inherent appeal and the ongoing influx of high-wage jobs provide a strong foundation for future growth.
As developers and investors navigate this complex landscape, North Scottsdale remains a market to watch. With its blend of luxury living and robust economic drivers, it’s poised for a dynamic future. Stay tuned as we continue to track the latest developments in this ever-evolving submarket.