A Look at the Bright Side

EMPLOYMENT

Arizona Employment Trends

Economic and job market trends in Phoenix are markedly different today compared to the frothy gains recorded in 2006 when local employers increased payrolls by nearly 7% on a year-over-year basis. Nevertheless, an economic rebound is under way in the metro area.
The recovery is best evidenced through recent employment gains, which, in turn, will further drive key demographic and economic indicators such as retail sales, household formation and housing demand. Year to date through July, local employers have expanded payrolls by 9,000 positions, a 0.5% overall gain. Across the U.S., 930,000 jobs were created during the same stretch; an increase of 0.7%. In Phoenix job gains, moreover, are predicted to gain momentum in the second half, as businesses in the metro are on pace to expand staffing levels by an estimated 9,800 positions during the last two quarters of 2011.

DEMOGRAPHICS

As expected, resurgent hiring in Phoenix bodes well for long-term demographic trends. Population levels, for instance, are forecast to rise at a healthy clip. In the 10-year period ending at the close of 2009, the number of Phoenix residents increased at an average annual rate of 3.1%; Phoenix ranked fourth in terms of overall population growth during the previous decade. Despite the acute decline of the area’s single-family housing market during the recession and the loss of more than 120,600 jobs in 2009, rebounding employment trends and the attractiveness of the metro to families and businesses will buttress population growth. As a result, the number of Phoenix residents is estimated to rise 2.7% over the next five years, trailing only the Raleigh, NC and Austin, TX metropolitan areas.

CONSUMER SPENDING

In addition to the growing pool of residents, the re-energized employment market is lending a boost to consumer confidence, and, consequently, retail sales. Although Arizona annualized retail sales fell for 13 consecutive quarters during the recession, retail sales have rebounded in each quarter since the final three months of 2010. Annualized retail sales are up 7.2% in the past 12 months and have climbed a healthy-6.9% during the first half of 2011.

REAL ESTATE ACTIVITY

Acquisitions of distressed properties are providing a boost to commercial real estate deal flow in the metro area, although the stabilizing economy and loosening capital markets are also luring traditional investors off the sidelines. While velocity will remain below levels recorded before the capital markets freeze in mid-2007, buyers are ramping up activity. Velocity for all commercial real estate assets in Phoenix reached a low point in the first quarter of 2009, coinciding with the peak in the metro’s quarterly employment declines at 52,200 lost jobs. Since then, however, deal flow has improved or remained relatively stable in all but one quarter. The biggest jump in velocity has occurred among apartment properties due to above-average confidence in the metro’s foreclosure-fed pool of renters. Nevertheless, industrial and retail investors have displayed increased confidence in their respective property types, and buyers are expected to continue to redeploy accumulated capital in greater amounts as the economy firms.

GOING FORWARD

year over year investment trends

Economic challenges will continue to diminish in Phoenix. Although local public sectors, like most other metros, will weigh on growth, hiring will persist through late 2011. Payroll gains are projected to accelerate to 0.6% in the metro area during the last half of 2010, while national-level growth will be limited to 0.5% during the final half of the year. The Phoenix metro’s steadily improving economy, consequently, will provide a boost to commercial real estate sales and fundamentals into 2012.

QUICK FACTS
U.S. Employment Change 2010: 940,000 / 0.7%
Phoenix MSA Employment Change 2010: 4,700 / 0.3%

U.S. Employment 2011 Forecast: 1.45 million / 1.1%
Phoenix MSA Employment 2011 Forecast: 17,500 / 1.0%

Phoenix Population Growth 1999 – 2009: 3.8%
Phoenix Population Growth Forecast 2010-2015: 3.3%

2010 Qualified CRE Sales in Phoenix: 769
Projected 2011 Qualified CRE Sales in Phoenix: 825