GREATER PHOENIX BLUE CHIP • NOBEMBER 2003

VOLUME 15 • NUMBER 4 • NOVEMBER 2003
........................................................................................... PAGE 1

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B
L U E • C H I P • E C O N O M I C • F O R E C A S T
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Forecasters see slow, steady growth for real estate market
The real estate market is improving,
albeit slowly. The single-family market is
headed for another record year in 2003.
For commercial construction, the only
direction left is up.
Next year and 2005, the residential market
is expected to slow only modestly. While
this is a positive pattern, especially after
almost a decade of record or near-record
years, it differs from the historic pattern
where a slowdown in housing is followed by
a big increase during the recovery. Singlefamily housing should not be a drag on the
economy over the next couple of years.
The multifamily market should improve
slowly. Only about 5,000 permits are
expected to be issued in 2003, the lowest
level since 1993. Another 4,700 are expected
next year, followed by 5,000 in 2005.
Apartment absorption should continue to
be anemic this year, then increase in 2004
and 2005. Next year's projected number
would be the strongest level of absorption

for apartments since 2000. Vacancy rates,
on the other hand, are expected to modestly
decline, averaging 10.2 percent this year
and 9 percent by 2005.
The office market is in a similar situation.
High vacancy rates are expected to decline,
albeit modestly over the next few years,
down to approximately 16.5 percent from
the current level of nearly 19.5 percent.
Office construction, on the other hand, is
expected to hit its lowest level in six years in
2003 (0.8 million square feet constructed),
and increase only modestly to a little over
1 million square feet by 2005. Absorption,
which has been anemic over the last two
and a half years, is expected to slowly pick
up next year. But, even in 2005, it will be
weaker than in 2000.
The same is true of the industrial market
where the forecast for new construction
this year is the lowest since 1998, and
vacancy rates are at their highest level since
1993. Absorption is also at low levels.

While the panel expects construction to
pick up in 2005 (to 2.9 million square
feet), it will still be a weak year by historic
standards. Vacancy rates are expected
to decline from about 10.5 percent to 9
percent in 2003. Thus, those markets will
not be positive for the economy.
The retail market remains strong, with
construction in the 3 million square feet range
this year and next, and increasing to more
than 4 million in 2005. Absorption should
approximate the level of new construction
and, as a result, vacancy rates are expected
to stay at or about present levels.
Overall, the real estate market is recovering, if “not getting worse” is your definition of recovery. Although commercial
real estate in Greater Phoenix clearly is
probably past the bottom, vacancy rates
remain high enough so that markets will
not be buoyant for some time to come.
— Elliott Pollack

Job growth will make the economy "feel better" in 2004
The outlook remains positive for the
Greater Phoenix metro area, with very
little change from last quarter's forecast.
The consensus shaved a few tenths of
a percent off most of the employment
categories except construction, which
was revised upward. The differences were
minor, but do suggest that the year-todate numbers were at the low end of the
expected range.
Does this signify a jobless recovery?
No — in the sense that we are seeing job
creation in those sectors that have begun
to recover. However, it is clear that job
growth is not up to the pace people
have come to expect for the region.
Manufacturing has started on the road to
recovery since the beginning of the year.
The sector would have been significantly

better off without the Iraq war, but the
impact was felt for only about four months
before demand for high-tech goods began
to climb again. Should the improvement
in demand continue, manufacturing will
start adding jobs in 2004.
Employment data for business services,
which includes contract and temporary
workers, are not available separately for
Maricopa County. However, based on
the numbers for the state as a whole,
temp work is beginning to ramp up — a
precursor to a jump in full-time employment. The biggest exception may be
civilian aerospace, which still has quite
a way to go before accomplishing a
turnaround.
Population growth remains much higher
than expected and, as a result, the best-

performing employment sectors are those
that are most closely tied to population.
Education and health services has been
the fastest-growing employment category,
which makes sense when overall population growth has remained high, and the
proportion of people with increasing
demand for these services is growing
even more.
The economy should be growing at
a fast enough pace in 2004 that most
consumers actually will be able to feel
the economy improving. It will be more
than reported numbers telling the story;
as job growth occurs in almost all sectors,
it should encourage confidence that the
recovery really has arrived.
— Tracy Clark

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

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GREATER PHOENIX BLUE CHIP • NOVEMBER 2003

GREATER PHOENIX ECONOMIC FORECAST FOR 2003
ANNUAL PERCENT CHANGE 2003 FROM 2002

SOURCE
Arizona Public Service
ASU - Bank One Economic Outlook Center
CH2M HILL
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Protitlement
Salt River Project
U of A - Eller College
VisionEcon
Consensus

Population
2.7
2.8
2.8
2.4 L
2.8
2.6
2.7
2.6
2.5
2.8
2.7
2.8
3.0 H
3.0 H
2.7

Personal
Income
5.4
5.6
5.5
5.6
5.5
5.0
4.6
5.5
5.6
5.6
6.2 H
5.0
3.3 L
6.2 H
5.3

Retail
Sales
4.6
5.0
4.7
5.4
5.2
4.5
4.4
4.5
5.0
5.0
5.4
3.0
2.9 L
6.0 H
4.7

Wage &
Salary
Empl.
1.8
1.3 L
2.6
1.6
1.4
1.8
1.4
2.0
2.4
2.0
2.8
1.5
1.4
3.2 H
1.9

Manufacturing
Empl.
(2.5)
(4.0)
(1.0)
(4.9)
(5.0) L
(4.0)
(4.8)
(2.0)
1.0
1.1
3.5 H
(5.0) L
(4.0)
2.0
(2.1)

AVERAGE RATE FOR 2003

Construction
Empl.
2.8
2.5
1.0
0.1
2.2
2.5
0.0
0.0
0.0
0.0
(3.0) L
3.0
4.1 H
2.2
1.2

Services
Empl.
3.0
3.5
3.2
2.6
2.2
4.0
3.0
3.0
3.4
3.0
4.2
1.5 L
1.5 L
4.5 H
3.0

National
CPI
2.3
2.1
2.1
2.4 H
2.0 L
2.1
2.3
2.2
2.2
2.2
2.4 H
2.3
2.2
2.0 L
2.2

Unemployment
Rate
4.9
5.2 H
4.9
4.9
5.2 H
4.5 L
4.9
4.5 L
4.5 L
4.7
4.6
5.2 H
5.0
4.8

GREATER PHOENIX ECONOMIC FORECAST FOR 2004
ANNUAL PERCENT CHANGE 2004 FROM 2003

SOURCE
Arizona Public Service
ASU - Bank One Economic Outlook Center
CH2M HILL
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Protitlement
Salt River Project
U of A - Eller College
VisionEcon
Consensus

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

2.7
2.7
2.7
2.3 L
2.7
2.7
2.7
2.7
2.7
2.8
2.8
3.1 H
2.6
2.8
2.7

6.3
6.2
6.2
6.1
6.2
6.7
6.7
6.2
6.5
6.3
6.8 H
6.8 H
5.5 L
6.7
6.4

5.8
6.0
6.0
6.0
6.0
6.5 H
5.9
5.5
6.2
6.1
6.5 H
6.0
3.9 L
6.1
5.9

3.5
3.0
3.3
2.1 L
3.7
4.0 H
3.6
3.1
3.2
3.3
3.8
3.5
3.1
4.0 H
3.4

2.1
1.5
2.8
(2.6) L
3.0
5.0
3.4
2.0
2.0
2.3
4.1
2.0
7.3 H
2.8
2.7

AVERAGE RATE FOR 2004

Construction
Empl.
1.1
(3.5) L
0.0
0.8
2.0
5.0 H
1.5
1.4
0.0
0.0
1.5
2.0
1.4
3.0
1.2

Services
Empl.

National
CPI

5.0
5.0
4.0
3.0 L
3.3
5.0
5.0
4.0
4.2
4.2
5.5
4.0
3.5
6.0 H
4.4

2.5
2.4
2.4
2.0
2.4
2.7
2.1
2.0
2.5
2.4
2.8
1.2 L
1.5
3.6 H
2.3

Unemployment
Rate
4.3
4.5
4.4
4.5
4.4
4.0 L
4.4
4.4
4.0 L
4.2
4.2
4.5
4.8 H
4.4

Data sources for Maricopa County (Greater Phoenix area): population, Arizona Department of Economic Security; personal income, Bureau of Economic Analysis; retail sales, Arizona
Department of Revenue; wage and salary employment, manufacturing employment, construction employment, service employment and unemployment rate,

GREATER PHOENIX HISTORICAL DATA
PopuPersonal
Retail
lation
Income
Sales
SOURCE
(thousands) (millions)
(millions)
2002
3,289
97,329
30,690
Percent Change
3.0
4.4
0.3
2001
3,194
93,227
30,605
Percent Change
3.1
4.6
1.5
2000
3,097
89,128
30,167
Percent Change
3.4
10.3
8.4
NA – Information currently unavailable due to conversion to NAICS

Wage &
Salary
Empl.
(thousands)
1,552.4
(0.5)
1,559.5
1.2
1,541.0
3.6

Manufacturing
Empl.
(thousands)
135.8
(9.6)
150.3
NA
NA
NA

Construction
Empl.
(thousands)
123.8
(2.3)
126.7
NA
NA
NA

Services
Empl.
(thousands)
609.4
0.8
604.5
NA
NA
NA

National
CPI
179.9
1.6
177.1
2.8
172.2
3.4

Unemployment
Rate
5.6
3.9
2.7

GREATER PHOENIX BLUE CHIP • NOBEMBER 2003

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METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2003

Arizona Public Service
ASU Real Estate Center
CB Richard Ellis
Elliott D. Pollack & Co.
Griffin Consulting
Grubb & Ellis
Marcus & Millichap
Meyers Group
Protitlement
U of A, Eller College
Consensus
Actuals from ASU:
2002 Actuals
2001 Actuals

2004

2005

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

34,600
35,000
38,400
34,500
38,500
N/A
N/A
29,800
38,500
38,500
35,975

4,000
6,000
4,400
4,500
5,000
3,500
6,094
4,500
4,100
7,000
4,909

10.2%
11.0
10.0
10.0
9.3
9.5
10.1
N/A
11.0
N/A
10.1%

2,300
1,500
4,000
2,000
4,300
4,500
1,795
N/A
3,800
N/A
3,024

35,500
33,400
36,200
32,700
37,000
N/A
N/A
28,800
36,200
32,700
34,063

4,000
7,250
4,000
5,000
5,200
2,000
5,793
4,200
4,800
4,300
4,654

9.4%
10.0
9.6
9.5
8.8
9.0
9.9
N/A
10.4
N/A
9.6

6,700
8,000
5,000
6,000
6,200
5,500
3,355
N/A
5,100
N/A
5,732

33,000
32,000
34,400
31,000
35,750
N/A
N/A
28,500
32,000
38,200
33,106

6,500
7,500
3,700
6,000
5,400
2,000
N/A
4,000
5,500
4,600
5,022

34,312
32,867

5,607
7,201

9.4
8.2

3,355
1,525

Year-end
Apt.
Apt.
AbsorpVacancy
tion

8.4%
9.5
9.2
9.5
8.2
8.5
N/A
N/A
9.2
N/A
8.9

9,000
8,350
5,000
6,000
6,000
6,000
N/A
N/A
6,400
N/A
6,679

2002 year-end inventory: 863,726 (single-family)
321,459 (multi-family)

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

Construction
Arizona Public Service
CB Richard Ellis
Cushman and Wakefield
Elliott D. Pollack & Co.
Grubb & Ellis
Lee and Associates
Marcus & Millichap
PricewaterhouseCoopers LLP
Protitlement
Consensus
Actuals from Lee & Associates:
2002 Actuals
2001 Actuals

2003

2004

2005

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Absorption

1.50
0.55
0.28
0.70
0.50
0.99
0.48
1.00
0.70
0.74

22.0%
18.8
18.5
19.0
20.7
18.7
17.3
22.0
16.5
19.3

1.00
0.80
0.97
1.20
0.90
1.51
0.29
0.80
0.80
0.92

2.90
4.71

19.3
16.6

1.19
1.15

Construction
1.00
1.00
0.61
1.00
0.70
1.27
1.38
0.50
0.60
0.90

19.0%
17.7
17.2
18.0
19.3
18.8
16.9
22.0
15.2
18.2

Absorption
2.50
1.50
1.90
1.50
1.30
1.78
1.57
0.75
1.50
1.59

Construction
1.50
1.30
0.73
1.20
1.00
0.76
N/A
1.00
1.10
1.07

15.9%
16.5
15.3
16.5
17.6
15.3
N/A
19.0
14.5
16.3

Absorption
3.00
1.80
2.75
2.00
1.80
1.78
N/A
1.20
1.65
2.00

2002 year-end inventory: 54.3 million square feet

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RETAIL (Millions of Square Feet)
2003
Construction
Arizona Public Service
CB Richard Ellis
Grubb & Ellis
Marcus & Millichap
PricewaterhouseCoopers LLP
Protitlement
Consensus
Actuals from CB Richard Ellis:
2002 Actuals
2001 Actuals

Leaseable
Year-end
Vacancy

2004
Absorption

Construction
3.00
4.00
5.00
1.32
2.00
3.10
3.07

2.50
5.00
4.00
1.79
2.00
2.80
3.01

10.7%
7.1
8.5
9.1
8.0
9.8
8.9

2.00
4.25
4.70
1.89
1.60
2.40
2.81

3.89
7.46

7.3
6.6

3.04
5.72

Leaseable
Year-end
Vacancy
10.4%
6.9
8.9
8.8
8.0
9.9
8.8

2005
Absorption
3.00
4.00
5.00
1.61
2.00
2.80
3.07

Construction
5.00
4.50
5.50
N/A
2.50
3.25
4.15

Leaseable
Year-end
Vacancy
10.9%
7.0
8.5
N/A
9.0
10.0
9.1

2002 year-end inventory: 105.0 million square feet

Absorption
4.00
4.00
6.00
N/A
2.00
3.10
3.82

PAGE 4

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GREATER PHOENIX BLUE CHIP • NOVEMBER 2003

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

CB Richard Ellis**
Cushman and Wakefield**
Grubb & Ellis**
Lee & Associates*
Consensus — Total Space

Construction
2.50
0.63
2.60
1.95
1.92

Actuals from CB Richard Ellis:
2002 Actuals Total Space
2001 Actuals Total Space
2000 Actuals Total Space
1999 Actuals Total Space
*All space over 5,000 sq. ft.

5.65
8.47
6.51
9.45

2003

2004

2005

Leaseable
Year-end
Vacancy
10.4%
9.5
10.9
11.0
10.5

Leaseable
Year-end
Vacancy
10.2%
8.6
10.5
10.0
9.8

Leaseable
Year-end
Vacancy
9.9%
7.2
9.8
9.5
9.1

10.3
9.8
7.4
8.1

Absorption
2.50
0.15
2.50
0.80
1.49

3.36
2.77
10.71
7.03

**Total market (space over 10,000 sq. ft.)

Construction
3.50
1.10
3.50
1.50
2.40

Absorption
3.30
2.10
3.70
1.00
2.53

Construction
4.00
1.90
3.50
2.10
2.88

Absorption
3.80
3.80
4.90
1.20
3.43

2002 year-end inventory: 210.4 million sq. ft. (CB Richard Ellis)*
229.3 million sq. ft. (Cushman and Wakefield)**
218.9 million sq. ft. (Lee & Associates)*
229.0 million sq. ft. (Grubb & Ellis)**

REAL ESTATE FORECAST PANEL
Arizona Public Service
Pete Ewen
Arizona Real Estate Center
Arizona State University
Jay Q. Butler
CB Richard Ellis
Jeff Cooledge
Cushman and Wakefield
Stewart Park

Elliott D. Pollack and Co.
Elliott Pollack

The Meyers Group
Stu Burton

Griffin Consulting
Brian J. Smargiassi

PricewaterhouseCoopers LLP
Tom Kabat and Saul Sanchez

Grubb & Ellis
George Gramm

Protitlement
Steven Pritulsky

Lee & Associates Arizona
Curt Czarsty and Matt Fredrick

University of Arizona, Eller College
Marshall Vest

Marcus & Millichap
Tim Rios and Jason Wong

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Donald Wehbey

ECON-LINC
John Lucking

Elliott D. Pollack and Co.
Elliott Pollack

Arizona Public Service Co.
Pete Ewen

H. C. Reardon Economics
Hank Reardon

Protitlement
Steve Pritulsky

Joint Legislative Budget Committee
Staff

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Lancaster Consulting
Dwight Duncan

University of Arizona, Eller College
Marshall Vest

The Maguire Co.
Alan Maguire

Vision Econ
Debra J. Roubik

Arizona State University
Bank One Economic Outlook Center
Tracy Clark
CH2M Hill
Kent Ennis

Bank One Economic
Outlook Center
Tracy L. Clark, Economics Editor
Elliott Pollack, Topics Editor
Nancy A. Maneely, Editorial Coordinator
Laura Carr, Graphic Designer

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