JUNE 2005 Volume 17, Number 2
GREATER PHOENIX BLUE CHIP • JUNE 2005

........................................................................................... PAGE 1

Local real estate market looks to more growth in ’05, ’06
Like the Energizer bunny, the singlefamily real estate market just keeps on
going and going. After a record year in
2003, permits issued in 2004 were up
another 20 percent.
While the Blue Chip forecast calls for a
decline of just under 8 percent this year, the
ﬁrst four months' numbers are actually up
over last year's. Indeed, even if the projected
decline were to take place, 2005 would be
the second-best year on record. While a
minor decline in permits is expected in 2006,
it would also be an excellent year. Thus, the
panel does not foresee major changes in the
single-family market in the near future.
Multifamily permits are expected to
show a minor increase this year and more
than a 10 percent increase in 2006. Vacancy
rates are likely to decline over this period
largely because of higher absorptions. Part
of the absorption would come from a con-

...[T]he underlying basics
for an improving real
estate market still appear
to be in place.
tinued conversion of apartments to for-sale
condominiums.
Absorptions in the ofﬁce market have
exceeded new supply, albeit by a relatively
small amount over the last couple of years.
That trend is expected to continue in 2005
and 2006 when, in total, a million square
feet more of ofﬁce space is expected to
be absorbed than built. As a result, ofﬁce
vacancy rates are likely to continue to
decline. Construction is expected to remain
strong this year and accelerate in 2006.
Retail, which follows the housing cycle,

remains strong. Both absorption and new
construction are expected to stay in the
range of 4 million square feet over the next
couple of years.
The industrial market has recovered rapidly. While the participants in the industrial
part of the survey actually forecast slightly
different markets (some forecast total space
for buildings greater than 10,000 square
feet while others track buildings greater
than 5,000 square feet), all of the participants expect vacancy rates to be ﬂat to
down and they foresee absorption exceeding new supply. Given Greater Phoenix's
healthy environment, this makes sense.
Thus, despite all the press about bubbles
and low-cap rates, the underlying basics for
an improving real estate market still appear
to be in place.
— Elliott D. Pollack

Consensus panel sees moderation in economic pace next year
The Blue Chip panel continues to be
optimistic about the economic prospects
in the Greater Phoenix area for 2005 and
2006. The panel is forecasting a moderation
in the pace of the economy in 2006, which
is consistent with most forecasters’ expectations regarding the nation's economic pace
in 2006. The national economy needs to
slow down to avoid overheating, and the
local economy will follow suit.
Manufacturing was one of the few
remaining employment dark spots for
our economy in 2004, but it is expected
to ﬁnally post a positive year in 2005 and
continue the trend next year. Phoenix had
bucked the national trend of declining
manufacturing employment for so long
that the declines associated with the last
recession were a shock. Of course, it was
the growth in tech-related manufacturing

that allowed us to hold off the decline until
the popping of the tech bubble.
Construction and mining employment
continues to increase, primarily on the
strength of construction. Construction
employment growth will slow when activity slackens, but perhaps not in lockstep.
Construction activity has outpaced the
supply of skilled workers so that the time to
completion, particularly for single-family
homes, has lengthened considerably. The
ﬁrst impact of a reduction in the pace of
residential construction is likely to be a
shortening of the time to completion rather
than a drop in employment.
Retail sales are roughly consistent with
the improving employment picture and
robust population growth. However, it
seems likely that personal income for 2004
will have to be revised upward to account

for all of the observed sales growth. It is
difﬁcult to extrapolate a trend for the current year from only two months of sales
tax collections, but so far the pace is only
slightly slower than last year.
People may be willing to spend more
because of the appreciating value of their
houses. There was a wealth effect from
the stock market during the ’90s, and the
real estate boom may be creating another
wave of spending just because people feel
wealthier. People had been pulling equity
out of their homes as mortgage rates were
dropping, but with rates above the point at
which most people last reﬁnanced, that does
not appear the case now. Wealth effects do
not require that the gains actually be realized — only that people feel wealthier.
— Tracy Clark

PAGE 2

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GREATER PHOENIX BLUE CHIP • JUNE 2005

GREATER PHOENIX ECONOMIC FORECAST FOR 2005
ANNUAL PERCENT CHANGE 2005 FROM 2004
PopuSOURCE
lation
Arizona Public Service
3.1
ASU – Bank One Economic Outlook Center 2.8 L
CH2M HILL
2.9
Department of Economic Security
2.8 L
ECON-LINC
3.0
EconLit LLC
2.8 L
Elliott D. Pollack and Co.
3.3
H.C. Reardon Economics
3.0
Joint Legislative Budget Committee
2.9
The Maguire Company
3.0
Protitlement
3.0
Salt River Project
3.0
U of A – Eller College
4.1 H
VisionEcon
3.4
Consensus
3.1

Personal
Income
7.7
7.0 L
7.0 L
7.4
7.2
7.0 L
7.5
7.6
7.4
7.4
7.2
7.5
9.6 H
9.2
7.6

Retail
Sales
7.5
6.6 L
6.7
6.7
7.3
6.8
8.0
7.7
7.0
7.5
6.8
9.0 H
8.4
8.3
7.5

Wage &
Salary
Empl.
4.2
4.2
4.5
3.2 L
4.2
4.0
4.5
4.0
4.0
4.5
4.5
4.5
5.8 H
5.5
4.4

Manufacturing
Empl.
2.6
2.6
2.5
0.9
2.0
2.9
2.5
0.6 L
2.8
3.5
3.7
2.5
4.9 H
1.8
2.6

AVERAGE RATE FOR 2005

Construction
Empl.
5.6
5.0
1.8
6.9
5.0
2.2
6.5
5.0
2.5
2.2
(1.0) L
1.0
8.8 H
4.0
4.0

Services
Empl.
4.8
7.5
4.7
4.5
4.5
4.6
5.0
4.0 L
5.0
5.0
5.8
5.0
5.6
8.3 H
5.3

National
CPI
2.2
2.2
2.6
2.4
2.8
2.5
2.7
3.0
2.6
2.4
2.5
2.3
2.1 L
3.3 H
2.5

Unemployment
Rate
4.1
4.2
4.3
4.4 H
4.0
3.8
4.0
4.0
4.1
4.2
3.9
3.5 L
4.0
4.0

GREATER PHOENIX ECONOMIC FORECAST FOR 2006
ANNUAL PERCENT CHANGE 2006 FROM 2005

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

AVERAGE RATE FOR 2006

Wage &
Salary
Empl.

Manufacturing
Empl.

Construction
Empl.

6.0
6.0
6.1
6.5
7.0
7.0
7.5
6.8
7.0
7.0

3.8
3.8
3.5 L

2.0
2.6
2.4

4.2 H
3.0
(5.0) L

4.6
7.0
4.0 L

4.2
4.5 H
4.3
3.8
4.1
4.4

2.5
3.0
3.5 H
1.6
3.2
3.5 H

(2.0)
2.0
0.0
3.0
2.5
2.0

4.6
5.0
5.5
5.0
5.0
5.5

7.0
5.8 L
9.3 H
6.8

4.0
4.1
4.3
4.1

2.5
1.4 L
1.6
2.5

1.0
4.0
0.0
1.2

Population

Personal
Income

Retail
Sales

3.0
2.8 L
2.9
2.9
2.9
3.0
3.1
3.0
2.9
3.0

7.4
6.8 L
6.8 L
7.2
7.0
7.0
7.7
7.3
7.3
7.5

2.9
3.6 H
3.3
3.0

7.0
8.9 H
8.3
7.4

Services
Empl.

5.0
4.4
12.0 H
5.6

National
CPI

Unemployment
Rate

2.0
2.5
2.8
2.2
2.8
2.5
3.0
2.2
2.5
2.5

4.0
3.8
4.0

1.6 L
1.6 L
3.2 H
2.4

3.3 L

3.8
3.7
4.0
3.8
4.0
4.2 H

3.8
3.9

Data sources for Maricopa County (Greater Phoenix area): population, U.S. Census Bureau; 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, DES.

GREATER PHOENIX HISTORICAL DATA

SOURCE
2004
2003
2002

Population
(thousands)
3,501
3.3%
3,389
2.9%
3,294
3.1%

Personal
Income
(millions)
109,257
6.9%
102,205
4.7%
97,597
4.3%

Retail
Sales
(millions)
35,466
9.6%
32,371
5.5%
30,690
0.3%

Wage &
Salary
Empl.
(thousands)
1,632.9
3.6%
1,575.8
1.2%
1,556.9
-0.2%

Manufacturing
Empl.
(thousands)
127.7
-0.5%
128.3
-5.0%
135.0
-10.2%

Construction
Empl.
(thousands)
139.4
8.1%
128.9
2.5%
125.7
-1.6%

Services
Empl.
(thousands)
656.8
4.9%
626.4
2.6%
610.8
1.0%

National
CPI
188.9
2.7%
184.0
2.3%
179.9
1.6%

Unemployment
Rate
4.4
5.2
5.6

........................................................................................... PAGE 3

GREATER PHOENIX BLUE CHIP • JUNE 2005

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2005

2006

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy (%)

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy (%)

Apt.
Absorption

Arizona Public Service
ASU Real Estate Center
CB Richard Ellis
Commerce Realty Advisors
Elliott D. Pollack and Co.
Grifﬁn Consulting
Grubb & Ellis/BRE Commercial
Univ. of Arizona, Eller College

42,500
49,000
53,000
61,500
52,000
50,000
55,000
56,800

4,800
4,500
6,000
5,500
4,500
4,700
4,800
5,131

8.9
9.0
7.4
9.0
7.5
9.1
8.5
N/A

4,700
4,000
4,000
5,900
5,000
5,300
4,900
N/A

43,400
44,500
55,000
63,500
48,000
47,500
50,000
50,700

4,900
6,000
6,500
6,500
5,000
5,250
5,000
4,554

8.5
8.5
7.0
8.5
7.0
8.8
8.0
N/A

5,900
6,000
5,000
6,900
6,000
6,400
5,200
N/A

CONSENSUS

52,475

4,991

8.5

4,829

50,325

5,463

8.0

5,914

Actuals from ASU and U of A:
2004 Actuals
2003 Actuals
2002 Actuals

56,896
47,285
40,002

4,682
4,836
5,607

7.9%
9.6%
9.4%

9,230
3,702
3,355

2004 year-end inventory: 943,542 (single-family)
330,291 (multi-family)

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
OFFICE (Millions of Square Feet)
2005
Construction

2006

Vacancy
(Year End %)

Absorption

Construction

Vacancy
(Year End %)

Absorption

Arizona Public Service
CB Richard Ellis
Elliott D. Pollack & Co.
Grubb & Ellis/BRE Commercial
Lee & Associates
PricewaterhouseCoopers LLP

1.10
1.00
1.30
1.20
1.18
1.50

19.5
14.5
17.0
17.9
15.8
15.0

1.70
2.50
2.00
1.50
1.79
1.70

2.20
1.40
2.00
1.70
2.75
1.75

19.2
12.0
16.0
16.5
16.5
14.5

2.00
3.00
2.50
2.10
1.79
1.90

CONSENSUS

1.21

16.6

1.87

1.97

15.8

2.22

Actuals from Lee & Associates:
2004 Actuals
2003 Actuals
2002 Actuals

1.67
1.08
2.89

18.2
18.7
19.3

2.07
1.32
1.19

2004 year-end inventory:

55.6 million square feet

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RETAIL (Millions of Square Feet)
2005
Construction

2006

Vacancy
(Year End %)

Absorption

Construction

Vacancy
(Year End %)

Absorption

Arizona Public Service
CB Richard Ellis
Grubb & Ellis/BRE Commercial
PricewaterhouseCoopers LLP

4.20
7.00
4.00
4.00

11.6
6.5
6.0
9.3

3.00
7.00
3.80
4.25

3.60
6.50
4.50
4.50

11.7
5.8
6.5
8.5

3.10
7.50
4.00
4.50

CONSENSUS

4.80

8.3

4.51

4.78

8.1

4.78

Actuals from CB Richard Ellis:
2004 Actuals
2003 Actuals
2002 Actuals

5.60
5.00
3.89

6.1
7.4
7.3

6.66
4.12
3.04

2004 year-end inventory:

115.5 million square feet

PAGE 4

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GREATER PHOENIX BLUE CHIP • JUNE 2005

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
INDUSTRIAL (Millions of Square Feet)
2005

2006

Construction

Vacancy
(Year End %)

CB Richard Ellis*
Grubb & Ellis/BRE Commercial**
Lee & Associates *

6.00
4.10
2.50

7.8
8.8
10.0

7.00
7.50
5.00

7.00
5.20
1.50

7.8
7.2
10.5

6.50
8.00
3.00

CONSENSUS — TOTAL SPACE

4.20

8.9

6.50

4.57

8.5

5.83

Actuals from CB Richard Ellis:
2004 Actuals Total Space
2003 Actuals Total Space
2002 Actuals Total Space

4.56
3.44
5.65

8.5
9.7
10.3

6.27
4.40
3.36

*All space over 5,000 sq. ft.

Absorption

Construction

Vacancy
(Year End %)

Absorption

2004 year-end inventory:
222.6 million sq. ft. (CB Richard Ellis) *
225.9 million sq. ft. (Lee & Associates)*
240.0 million sq. ft. (Grubb & Ellis) **

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

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

CRA Ltd.
Jeremy McArthur

Lee & Associates Arizona
Curt Czarsty and
Josh Kohlhase

Elliott D. Pollack and Co.
Elliott Pollack

PricewaterhouseCoopers LLP
Tom Kabat
University of Arizona, Eller College
Marshall Vest

Grifﬁn Consulting
Brian J. Smargiassi
Grubb & Ellis/BRE Commercial
Mike Coover

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Donald Wehbey

ECON-LINC
John Lucking

Arizona Public Service Co.
Pete Ewen

EconLit LLC
Dwight Duncan

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

Elliott D. Pollack and Co.
Elliott Pollack
Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

H. C. Reardon Economics
Hank Reardon
Joint Legislative Budget Committee
Staff
The Maguire Co.
Alan Maguire

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 W. P. Carey School
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For information, call the Bank One Economic Outlook Center at
(480) 965–5543.
©2005 Arizona Board of Regents for Arizona State University. Reprint
permission required from the Bank One Economic Outlook Center.
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• Not Printed or Mailed at State Expense •

University of Arizona, Eller College
Marshall Vest
Vision Econ
Debra J. Roubik