The Tucson apartment market has been remarkably steady for the past few years with occupancy remaining in the 90% to 91% range and rents slowly edging higher. Rental concessions have also continued to improve modestly, helping to boost property operating incomes.
In the first quarter, operating fundamentals continued their slow and steady improvement, a trend which has been ongoing for over 14 quarters. The market again absorbed a modest number of units, and the overall vacancy rate decreased from 9.41% to 9.33%. Rental rates showed modest gains with average rents up just under $1 per month to $639 per unit.
Submarket and product quality differentiation has also remained very steady with class A properties continuing to show the lowest vacancy at 7.53%, and class C properties reporting the highest vacancy at 12.83%. This trend has been longstanding, with class A properties leading the market even in the face of 1,400 plus new units being construction and scheduled to open in 2014. The higher income submarkets of Catalina Foothills, Northeast Tucson and Northwest Tucson maintained their trend of strong occupancy, all reporting vacancy rates below 7.2%.
Numerous economic forecasts predict an increase in job growth velocity for Tucson and Southern Arizona which should translate into improved occupancy and income in the coming quarters. At 6.6%, the Tucson unemployment rate is below the state and national averages; however, the post-recession job recovery has been modest, and job gains are still needed.
Investors are beginning to focus on Tucson, as the steady income stream the market offers has become attractive in the face of high pricing elsewhere. Modest CAP rates combined with low cost and readily available financing and operating statements with economic occupancy in the mid 80% range offer attractive investments for investors.
Source: Real Data/Apartment Insights