[Source: Brian Louis, Bloomberg] — Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard. The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses. Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade.
Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg. The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent. In Phoenix, the economic recovery looks a lot like a recession. “A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “These are more volatile markets and getting back to normal could take years.”
Phoenix and other southern and western cities such as Atlanta, Houston, and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed. The Phoenix area’s population is forecast to increase 1.6 percent in 2009 from 2008 and 1.8 percent in 2010, according to a forecast by Scottsdale, Arizona-based real estate and economic consulting firm Elliott D. Pollack & Co. That’s the slowest growth since at least 1990. Employment may fall 6 percent in 2009 and another 1 percent in 2010, according to the firm.
The real estate crisis has brought economic growth to an end. Arizona had the highest unemployment rate since 1983 in July at 9.2 percent, according to the U.S. Bureau of Labor Statistics. The rate fell to 9.1 percent in August. Single- family building permits in metropolitan Phoenix may fall to 5,973 this year, down 81 percent from 2007, according to a consensus forecast of real estate and consulting firms and universities compiled by Arizona State University’s W.P. Carey School of Business. “The economy in Phoenix is in tatters right now,” said Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California. “It’s now really hit the skids.” [Note: Read the full article at Recession rising like Phoenix with area delinquencies surging.]
[Source: Katrina Wessman, Channel 15 News] — Forbes has ranked the top 10 best and worst big cities for jobs in a new report. The study is based on job growth in 336 regions across the U.S. The study looks at job growth in the last year and how employment figures have changed since 1996. While Arizona cities do not make the cut on either list, they are mentioned in the report.
Cities with formerly thriving economies like Phoenix are more likely to rebound. According to the Forbes article, Phoenix-based economist Elliot Pollack said the existing reasons for moving to Arizona, including warm weather, relatively low taxes, and generally pro-business governments, are still there. Once the economy stabilizes, the flow of people and companies from the Northeast and California to Phoenix and other former hot spots will resume, because of the inexpensive real estate, better conditions for business, and a generally more up-to-date infrastructure. [Note: To read the full article, click here.]
[Gary Nelson, Mesa Republic] — Tens of thousands of jobs. Millions of dollars in taxes. Billions of dollars in salaries. The numbers flew like snowflakes in a blizzard Thursday as DMB Associates spelled out what it sees as the likely impact of its Mesa Proving Grounds project. All well and good, the City Council said. But they had one request: Put it in writing. Councilman Scott Somers, who has worried aloud in several recent meetings about whether the project could deliver on its high-flying promises, said several sections of the Proving Grounds’ zoning ordinance should be rewritten to include those economic goals and how they’ll be met. DMB attorney Grady Gammage Jr. agreed to do that. The ordinance, still in draft stages, is expected to come before the council next month.
While talk about the possible impact of DMB’s project is nothing new, some of the numbers that came out on Thursday were. DMB hired Valley economists Elliott Pollack and Alan Maguire to analyze the dollars-and-cents impact of its property in coming decades. Here’s a sample of what they came up with, using a computer program developed by University of Minnesota economists:
- At buildout, the 5 square miles is expected to have 20 million square feet of commercial space, 14.5 million square feet of which will be offices. There will be 4,000 hotel rooms, 1.2 million square feet of retail, 15,000 dwelling units with perhaps 37,500 residents and as many as 91,800 permanent jobs.
- Construction on the entire site will create 116,497 “job years.” A “job year” is enough work to keep one tradesman busy for a year. Construction will generate $6.1 billion in total wages.
- The city would collect $40 million a year in sales taxes and other revenue as the project reaches maturity.
- Permanent jobs at buildout could generate $4.5 billion in annual wages.
- The hospitality segment, headlined by the recently announced Gaylord resort, will generate 4,000 to 4,500 jobs with annual wages of $144 million to $162 million.
- Total construction costs reaching $9.3 billion.
“This is a big deal,” Maguire told the council — echoing precisely the same words Mayor Scott Smith had used in council chambers only three days previously, when the council approved a new general plan for DMB’s land. Maguire told The Mesa Republic that the numbers could be on the low side. “All the analysis that was done was done relatively conservatively,” he said. “These numbers are not sort of pie-in-the-sky numbers.”
Gammage said the Mesa site is likely to build out with more office space than currently exists in downtown Phoenix and far more than the Scottsdale Airpark, which is hailed as one of the Valley’s economic successes. [Note: To read the full article, click here.]
[Source: Catherine Reagor, Arizona Republic] — There’s no doubt that too many new homes went up across metropolitan Phoenix during the 2004-06 boom. What has been in dispute is just how “overbuilt” the housing market is now. New research from the firm of Arizona economist and real-estate investor Elliott Pollack shows the housing market built up to 75,000 more homes than there were buyers for in the Valley. That figure is based on “demand” for 35,000 homes a year in metro Phoenix.
In 2005, almost 64,000 new homes went up, according to RL Brown’s Housing Market Report. Home building has slowed considerably since then. Last month, only 970 single-family permits were issued Valley-wide, making it the slowest month since the real-estate crash of 1991. And though home builders are on track to build only about 15,000 homes this year, there’s still overhang from the boom. Pollack estimates there are still 30,000 to 50,000 new homes that need to be “absorbed” or bought and lived in Valley-wide. But he said these factors are slowing the absorption of new homes: a decline in population growth, too many homes for sale, rising foreclosures, and the continued construction of homes. The surplus of new homes will put off the housing market’s recovery, but by how long depends on all those other economic factors.
[Source: Elliott Pollack] — To paraphrase Mark Twain, “The report of Phoenix’s death has been greatly exaggerated.” To be sure, the Phoenix metropolitan area, for the first time in years, is suffering through a period of economic distress both in absolute and relative terms. However, the distress is purely transitory, caused primarily by the ripple effects of a 75% decline in building permits over the last three years combined with the national slowdown in economic activity. The underlying fundamentals remain strong as does the long-term outlook.
Builders in greater Phoenix, like in many communities, overbuilt during the boom. This creates an oversupply that has been made worse by poor conditions for home sales in places like California, or Michigan, primary places from which people come to Phoenix. Yet it’s critical not to confuse today’s short-term setback, as many in the national media do, with setting the table for long-term stagnation. This pattern has been seen during previous recessions, notably between 1988 through 1992. After that, greater Phoenix came back with job growth during the expansion that started in November 2001 at three and a half times the national average.
The fundamentals that drove that recovery have not changed. These include factors such as climate; lifestyle; geographic location; pro-growth attitude; competitive tax structure; focused incentives; and relatively low cost of living. The long-term dynamics remain in place. [Note: To read the full article, click here.]