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PAGE 1
VOLUME 11 • NUMBER 2 • JUNE 2000

GREATER PHOENIX BLUE CHIP • JUNE 2000

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F

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Real estate market past peak
The large employment revisions recently
announced by the Arizona Department of
Economic Security go a long way toward
explaining why the real estate market is still
strong. Originally, Greater Phoenix employment was reported to be up 3.6 percent in
1999, which would have translated into
50,700 jobs. The revisions indicate that the
growth in employment was substantially
greater, increasing by 4.8 percent, or 68,200
jobs, in 1999. Thus, it now appears that the
Greater Phoenix area actually created 17,500
more jobs than were originally reported.
Since the vast majority of people who
move to Greater Phoenix are in search of
employment, job growth, coupled with the
very low unemployment rate, has kept population growing rapidly. As a result, housing
had another excellent, near-record year. The
revisions also indicate that housing growth
is likely to be greater this year than originally anticipated because the momentum
going into 2000 was so strong. The Greater
Phoenix Blue Chip consensus panel now

believes more than 31,000 single family units
will be permitted in 2000. In 2001, 28,000
units are anticipated.
Multifamily vacancy rates increased, but
not to the extent originally expected by the
panel. However, there is a good deal of apartment construction underway and the panel
expects vacancy rates to increase both this
year and next. Vacancy rates, however, will
still not be out-of-line with historic norms,
suggesting no major problems in the apartment market.
Job growth is expected to keep absorption
in the office market strong as well. Construction, however, is expected to approach 3.0
million square feet this year before slowing
to about 1.9 million square feet in 2001.
Thus, vacancy rates will remain at doubledigit levels in both 2000 and 2001.
Retail vacancy rates increased modestly in
1999 but are expected to remain stable this
year, as absorption is anticipated to nearly
match construction. Industrial vacancy rates
also are expected to remain low. Indeed, in-

dustrial absorption is expected to outpace
lower levels of construction both this year
and next.
Overall, it is clear that Greater Phoenix is
at or past the peak of construction. Although
last year’s figures were close to the record,
the peak of the cycle for single-family was
(continued on page 4)
REAL ESTATE MARKET
CYCLE CHARACTERISTICS
Declining Vacancy
New Construction
Retail

Increasing Vacancy
New Construction
Industrial
Apartments
Office

Equilibrium

Declining Vacancy
No New Construction

Increasing Vacancy
More Completions

Greater Phoenix economic outlook remains positive
The forecast for the Greater Phoenix area
continues to be positive, although the panel
remains convinced that the rate of growth is
slowing. However, given the recent high
levels of growth, if the Greater Phoenix area
were creating jobs today even at the lower
rates forecast for 2000 or 2001, it would still
rank among the top ten large metro areas.
It is clear that the recent bout of higher gas
prices has had very little impact on the
economy. Auto sales have continued; even
SUV sales have not been impacted very
much, according to anecdotal evidence.
Consumer confidence remains high, and
as long as confident consumers have money
to spend they will spend it. In fact, they will
spend it even when they don’t have it, as

evidenced by their continued willingness to
borrow (at least at current interest rates). The
question every analyst and policymaker is
now asking is what interest rate level will be
required to significantly slow the rate of
spending. Consumer spending (and by
extension the overall economy) needs to slow
down lest inflation rear its ugly head. Signs
of inflation are starting to pop up—some
firms recently have been able to make price
increases stick, a situation which many of
them have not seen for close to ten years.
The preceding paragraph may sound as
though it came from an article on the national
economy, but inflation represents the biggest
threat to the local and state economies as well.
There is currently very little fundamental

difference in the forces that are influencing
the national and local economies. Consumer
confidence is higher locally, which means
that we are growing faster than the nation
and will be impacted at least as much by any
drop in that confidence. While the local and
national economies are both benefiting from
improved conditions in Asia, the local
economy is probably benefiting more. It also
enjoys much more of a boost from the influx
of new residents, but that flow of people will
slow dramatically if there is a downturn in
the national economy.
All in all, the outlook for the local economy
is positive as long as the national economy
remains strong.
— T.C.

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • JUNE 2000

GREATER PHOENIX ECONOMIC FORECAST FOR 2000
AVERAGE RATE
FOR 2000

ANNUAL PERCENT CHANGE 2000 FROM 1999
Population

SOURCE
Arizona Public Service
ASU – Economic Outlook Center
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
University of AZ, Eller College
VisionEcon
2000 Consensus

3.1H
2.9
2.9
2.9
2.8
3.0
2.9
2.8
2.8
3.1H
3.0
3.0
2.7L
2.9

Personal
Income
7.0
6.5
6.2
8.2H
6.5
6.6
6.9
6.8
6.2
6.8
6.5
8.0
5.0L
6.7

Retail
Sales

Wage &
Salary
Empl.

6.0
5.2L
5.5
7.0
5.6
7.5
5.6
7.7H
5.8
5.9
6.0
5.7
5.8
6.1

3.6
2.7
3.7
4.2H
3.6
3.8
3.7
3.8
3.5
4.0
4.0
3.5
2.5L
3.6

Manufacturing
Empl.

Construction
Empl.

1.1
1.0L
2.5
2.5
2.0
1.5
1.5
1.8
1.7
2.0
1.3
2.6H
1.8
1.9

(3.2)
(1.0)
2.0
4.0H
(5.0)
2.0
1.0
(7.0)L
0.0
1.0
3.0
(0.5)
(5.0)
(0.5)

Services
Empl.
3.8
6.0
4.6
6.4H
4.4
5.0
4.5
4.3
4.6
4.5
4.5
4.0
3.5L
4.7

National
CPI

Unemployment
Rate

2.4
2.5
2.4
2.7H
2.3
2.5
2.7H
2.2
2.5
2.2
2.6
2.6
2.1L
2.4

3.4
3.0
3.9
—
3.5
2.9L
3.2
3.8
3.5
3.5
3.0
—
4.0H
3.4

GREATER PHOENIX ECONOMIC FORECAST FOR 2001
AVERAGE RATE
FOR 2001

ANNUAL PERCENT CHANGE 2001 FROM 2000
Population

SOURCE
Arizona Public Service
ASU – Economic Outlook Center
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
University of AZ, Eller College
VisionEcon
2001 Consensus

2.9
2.7
2.8
2.7
2.6
2.8
2.8
2.5L
2.7
3.0H
2.8
2.6
2.8
2.7

Personal
Income
6.7
6.0
5.9
7.5H
6.3
5.9
6.7
6.7
6.0
6.6
6.3
6.6
5.5L
6.3

Retail
Sales

Wage &
Salary
Empl.

5.5
4.3
5.0
6.2
5.3
5.0
5.5
6.5H
5.5
5.5
5.8
3.4L
5.3
5.3

3.2
2.9
3.4
4.0H
3.2
3.0
3.4
3.9
3.2
3.6
3.5
2.5L
3.1
3.3

Manufacturing
Empl.
0.6L
1.5
2.0
2.4
1.0
1.5
1.5
1.8
1.3
1.8
1.3
3.4H
1.5
1.8

Construction
Empl.
(1.5)
(4.0)
0.0
2.3H
(5.0)
(10.0)L
(6.0)
(5.0)
(5.0)
1.0
0.0
(4.4)
1.5
(2.9)

Services
Empl.
3.6
5.0
4.5
5.7H
4.2
4.5
4.0
3.7
4.5
4.0
3.5
3.1
2.5L
4.1

National
CPI

Unemployment
Rate

2.2
2.7H
2.5
2.5
2.5
2.7H
2.6
2.3
2.4
2.3
2.3
2.1
1.8L
2.4

3.8
3.3L
4.2H
—
3.7
3.3L
3.5
3.9
3.9
3.7
3.6
—
3.8
3.7

GREATER PHOENIX HISTORICAL DATA

SOURCE
1999
Percent Change
1998
Percent Change
1997
Percent Change
*Estimated

Population
(thousands)
2,882
3.1
2,794
3.3
2,706
3.2

Personal
Income
(millions)
77,162*
7.7
71,646*
7.9
66,400
8.4

Retail
Sales
(millions)
27,825
10.4
25,207
7.9
23,360
7.8

Wage &
Salary
Empl.
(thousands)
1,487.1
4.8
1,418.9
5.6
1,344.2
5.6

Manufacturing
Empl.
(thousands)
161.8
(2.9)
166.7
5.2
158.5
4.7

Construction
Empl.
(thousands)
112.3
7.6
104.4
11.8
93.4
5.5

Services
Empl.
(thousands)
486.2
9.0
446.2
5.2
424.0
7.3

National
CPI
166.6
2.2
163.0
1.6
160.5
2.3

Unemployment
Rate
2.9
2.7
3.0

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GREATER PHOENIX BLUE CHIP • JUNE 2000

PAGE 3

GREATER PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2000

Arizona Public Service
ASU Arizona Real Estate Center
CB Richard Ellis
Communities Southwest
Elliott D. Pollack & Co.
Griffin Consulting
Grubb & Ellis
Marcus & Millichap
The Meyers Group
PricewaterhouseCoopers
University of AZ, Eller College
Consensus
1999
1998
1997

Singlefamily
Permits

Multifamily
Permits

32,500
27,000
34,000
31,000
29,000
28,000
29,700
34,600
30,000
32,000
32,700
30,955
33,252
33,811
29,124

8,500
7,000
8,000
4,500
6,000
6,100
8,000
6,500
7,000
8,000
5,800
6,855
7,759
7,877
7,799

2001

Year-end
Apartment
Vacancy

Apartment
Absorption

6.5%
7.5
6.5
7.0
7.0
7.1
N/A
7.5
7.8
7.0
N/A
7.1
5.9
5.1
4.8

6,000
5,000
7,000
4,000
5,500
5,100
N/A
5,100
4,700
5,800
N/A
5,356
5,017
3,674
8,001

Singlefamily
Permits

Multifamily
Permits

30,000
24,500
32,000
28,000
26,000
26,500
28,000
31,500
27,000
30,000
25,100
28,055

8,000
7,500
7,000
4,000
5,000
6,000
7,500
6,100
7,400
7,400
4,800
6,427

Year-end
Apartment
Vacancy

Apartment
Absorption

7.3%
8.5
6.7
6.5
7.5
7.2
N/A
7.6
8.4
7.0
N/A
7.4

1999 year-end inventory:

5,000
5,000
6,300
3,500
6,000
4,900
N/A
4,900
5,700
5,600
N/A
5,211

756,732 single-family
296,761 multi-family

GREATER PHOENIX REAL ESTATE CONSENSUS FORECAST
OFFICE (Millions of Square Feet)

Arizona Public Service
CB Richard Ellis
Communities Southwest
Elliott D. Pollack & Co.
Grubb & Ellis
Lee & Associates Arizona
Marcus & Millichap
PricewaterhouseCoopers
Consensus
1999
1998
1997

2000

2001

Leaseable

Leaseable

Construction

Year-end Vacancy

Absorption

Construction

2.6
2.7
2.8
3.5
2.5
3.6
4.1
2.2
3.0
4.0
1.8
1.5

15.0%
10.0
12.0
13.0
11.0
11.7
12.2
15.0
12.5
11.4
9.3
9.3

1.7
2.7
2.4
2.0
2.3
1.8
2.9
1.0
2.1
1.7
1.6
1.7

1.5
2.5
2.5
2.0
2.5
1.9
1.3
0.8
1.9

Year-end Vacancy
14.3%
9.0
12.8
13.5
11.1
11.1
10.7
15.0
12.2

1999 year-end inventory:

Absorption
1.4
2.7
1.8
1.5
2.3
1.8
2.4
1.0
1.9

46.2 million square feet

GREATER PHOENIX REAL ESTATE CONSENSUS FORECAST
RETAIL (Millions of Square Feet)

Arizona Public Service
CB Richard Ellis
Communities Southwest
Grubb & Ellis
Marcus & Millichap
PricewaterhouseCoopers
Consensus
1999
1998
1997

2000

2001

Leaseable

Leaseable

Construction

Year-end Vacancy

Absorption

Construction

2.5
0.8
2.2
1.9
2.1
1.0
2.0
3.5
1.0
3.6

9.9%
5.5
9.2
6.5
9.8
11.0
10.0
10.0
9.1
9.5

2.0
4.1
1.8
1.7
1.9
0.8
1.6
2.3
1.2
3.4

1.8
0.6
2.0
1.7
3.6
1.0
2.1

Year-end Vacancy

1999 year-end inventory:

9.9%
5.8
9.5
6.7
9.9
12.5
10.5

Absorption
1.8
3.9
1.6
1.5
3.2
0.8
1.8

88.0 million square feet

Note: CB Richard Ellis forecasts retail space for buildings greater than 30,000 square feet and Grubb & Ellis forecasts space greater than 20,000 square feet. Both CB Richard Ellis and Grubb & Ellis appear to be forecasting
the same trend in the retail market. However, since the historic numbers represent building 10,000 square feet or greater, these companies are not included in the consensus calculation.

PAGE 4

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GREATER PHOENIX BLUE CHIP • JUNE 2000

GREATER PHOENIX REAL ESTATE CONSENSUS FORECAST
INDUSTRIAL (Millions of Square Feet)
2000

2001

Leaseable
Construction

Leaseable

Year-end Vacancy

8.2%
7.5
8.3
8.0

Absorption

Construction

8.0
6.5
5.5
6.7

5.5
3.5
4.5
4.5
3.5
3.5

CB Richard Ellis*
Lee & Associates*
PricewaterhouseCoopers
Consensus–Total Space

7.0
4.5
5.2
5.6

Grubb & Ellis†
Consensus–Spec Space

3.5
3.5

12.5
12.5

3.7
3.7

1999 (Total space)
1998 (Total space)
1997 (Total space)

9.5
7.0
8.1

8.1
7.1
7.0

7.0
8.0
9.4

Year-end Vacancy

Absorption

7.5%
8.5
8.1
8.0
12.5
12.5

7.5
5.6
4.8
6.0
3.7
3.7

1999 year-end inventory:
189.8 million sq. ft. total>5,000 sq. ft. (CB Richard Ellis)
196.2 million sq. ft. total >5,000 sq. ft. (Lee & Associates)
91.9 million sq. ft. spec >10,000 sq. ft. (Grubb & Ellis)

†Spec space over 10,000 sq. ft.

*Space over 5,000 sq. ft.

(continued from page 1)
probably achieved in 1998. Apartment con- Thus, construction activity should slow by historic standards. In addition, they are
struction should also slow after this year. It modestly.
dramatically lower than at the end of the last
Vacancy rates, while higher than they have cycle in the late 1980’s.
appears that the peak for office, retail and
— E.P.
industrial construction may have passed. been over the last few years, are still not high

REAL ESTATE FORECAST PANEL
Arizona Public Service
Pete Ewen

Elliott D. Pollack & Company
Elliott Pollack

Marcus & Millichap
David Illsley

Arizona State University, Arizona Real Estate Center
Jay Q. Butler

Griffin Consulting
Brian Smargiassi

The Meyers Group
David Thikoll

CB Richard Ellis
Kelli Brooks

Grubb & Ellis
George Gramm

PricewaterhouseCoopers
Tom Kabat

Communities Southwest
Steven M. Pritulsky

Lee and Associates Arizona
P.J. Swearengin

University of Arizona, Eller College
of Business & Public Administration
Marshall Vest

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Dan Anderson and Donald Wehbey

ECON-LINC
John Lucking

The Maguire Company
Alan Maguire

Arizona Public Service Company
Pete Ewen and Brian Cary

Elliott D. Pollack & Company
Elliott Pollack

Salt River Project
Arlyn Herrera and Karen Wolfe

Arizona State University,
Bank One Economic Outlook Center
Tracy Clark

H.C. Reardon Economics
H.C. Reardon

University of Arizona, Eller College
of Business & Public Administration
Marshall Vest

Communities Southwest
Steve Pritulsky

Bank One Economic
Outlook Center

Joint Legislative Budget Committee
Kent Ennis
Lancaster Consulting
Dwight Duncan

GREATER PHOENIX BLUE CHIP (ISSN 1042-6825) is published
four times a year by the Bank One Economic Outlook Center,
an affiliate of the L. William Seidman Research Institute in
the College of Business at Arizona State University. The
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