GREATER PHOENIX BLUE CHIP • OCTOBER 2000

VOLUME 12 • NUMBER 4 • OCTOBER 2000
........................................................................................... 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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Real estate market outperforms forecasts for 2000
The Greater Phoenix real estate market
continues to do well and the single-family
housing market remains strong. The forecast for single-family permits for 2000 now
exceeds 32,000 units, up from a forecast
of 31,000 in May of 2000. For next year,
the forecast now exceeds 29,000 units;
27,000 units are anticipated for 2002. This
decline is modest by historic standards and
is reective of expected continued growth
in the economy.
The outlook for multi-family housing
remains positive as well. More than 7,700
permits are anticipated this year, while
close to 7,000 are anticipated for next year
and 6,500 for 2002. Apartment vacancy
rates are expected to increase only modestly over the next few years as permitting
slows and absorption remains stable.
The office market outlook remains
sanguine as well. More than 3.0 million
square feet are expected to be built this

year, with a slowdown in construction to
2.3 million square feet next year and 2.0
million in 2002. The good news for the
office market has been the very strong
absorption levels. The panel expects
absorption to approach 3.0 million square
feet this year and slow to about 2.1 million
next year and 1.9 million in 2002. The net
result is that vacancy rates are expected
to remain relatively stable, in the 11.5 to
12.0 percent range. Because of the strong
absorption, the ofce market apparently is
not going to be overbuilt anytime soon.
Retail is stable as well. More than 2.2
million square feet will be built this year,
slightly above the level that is expected to
be absorbed. Construction should increase
to about 2.8 million square feet next year
and decrease to 2.2 million square feet in
2002. Vacancy rates are expected to be in
the 8.0 to 8.5 percent range.
The industrial market also remains

strong. Nearly 6.9 million square feet of
total space is anticipated for this year,
while another 6.0 million is expected to
be built in 2001 and 5.0 million in 2002.
Vacancy rates are expected to remain
stable as absorption stays in line with
construction.
Overall, the market remains in good
shape. While a slowdown in construction
is expected in all areas except the retail
market, absorption is anticipated to match
pace with construction and, by historic
standards, the slowdown is expected to be
very modest. In the absence of the passage
of Proposition 202, the economic outlook
is also sanguine, which is a necessary
condition for the real estate market to
stay as stable as it has been. Fears of
any signicant overbuilding appear to be
unfounded at the present time.
– E.P.

Greater Phoenix economic outlook remains positive

We asked the Blue Chip panel to take a
rst look at 2002 and to update its forecast
for 2000 and 2001. Those panelists willing
to give us a rst look at 2002 foresee an
economy still growing at a good pace, but
at a slower rate than in 2000 or 2001. The
panel so far has been conservative in its
forecasts during the current expansion, so
another good year is likely.
The actual performance of the economy
so far this year is better than the forecast
in the case of retail sales, wage and salary
employment, construction employment,
services employment and the unemployment rate. However, the panel has been
too optimistic concerning manufacturing
employment and the national CPI. The
below-expected growth in manufacturing
employment may reect tight labor markets, the lingering impact of the Asian

nancial crisis or the fact that new rms
are not immediately reected in the survey
estimates. The consensus agrees exactly
with the estimate of population growth
produced here at ASU, but its actual relation to the census remains to be seen. The
most recent data available for 2000 at press
time was through August for all indicators
except personal income, where the last
actual data point is 1998.
Good economic performance will continue as long as consumers are willing
to spend — and they have been, in large
part because of the unusually tight labor
markets. Announcements of layoffs in
both the old and new economies have
not caused much concern because of the
perception that other jobs will not be difcult to nd. However, consumer optimism
may begin to reflect the problematic

performance of the stock market, rising
energy costs and the attempts by the
Federal Reserve to slow the national
economy.
— T.C.
CONSENSUS FORECAST FOR 2002
Annual Percent Change from 2001
Population...................................
Personal Income.........................
Retail Sales ................................
Wage & Salary Employment.......
Manufacturing Employment........
Construction Employment ..........
Service Employment...................
National CPI ...............................
Unemployment Rate...................

2.7
6.5
6.2
3.2
1.5
(3.0)
4.9
2.5
3.5

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • OCTOBER 2000

GREATER PHOENIX ECONOMIC FORECAST FOR 2000
ANNUAL PERCENT CHANGE 2000 FROM 1999

SOURCE
Arizona Public Service
ASU – Bank One 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
U of A – Eller College
VisionEcon
1998 Consensus

Population
3.0
2.9
2.9
2.9
2.9
3.0
3.0
3.0
2.8
3.0
3.1H
3.1H
2.6L
2.9

Personal
Income
8.1
7.0
6.8
8.2
6.8
7.3
8.0
6.7
6.2L
6.8
6.8
8.3H
6.7
7.1

Retail
Sales
7.8
9.5
6.5
7.0
6.5
8.0
7.5
7.8
5.8L
6.1
6.8
10.1H
7.6
7.4

Wage &
Salary
Empl.
4.5
4.0
3.9
4.2
4.0
4.2
3.8
3.8
3.5
4.0
4.4
4.6H
3.1L
4.0

Manufacturing
Empl.
0.8
1.0
2.1
2.5
1.5
1.0
1.0
1.8
1.7
2.0
0.5L
2.8H
1.9
1.7

AVERAGE RATE FOR 2000

Construction
Empl.
3.1
3.0
2.6
4.0H
0.0
1.0
4.0H
(2.0)L
0.0
1.0
2.8
3.6
2.0
1.8

Services
Empl.
5.9
6.3
5.2
6.4
5.0
6.5
6.0
5.5
4.6L
4.6L
37.0H
5.8
5.5
5.7

National
CPI
2.9
2.5
2.6
2.7
2.6
2.5
3.2
3.3H
2.5
2.3L
3.2
3.3H
2.5
2.8

Unemployment
Rate
2.8
2.6L
3.0
—
3.2
2.9
3.2
3.7H
3.5
3.3
2.8
—
3.5
3.2

GREATER PHOENIX ECONOMIC FORECAST FOR 2001
ANNUAL PERCENT CHANGE 2001 FROM 2000

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
U of A – BPA College
VisionEcon
1999 Consensus

Population
2.9H
2.7
2.8
2.7
2.7
2.8
2.9H
2.9H
2.7
2.9H
2.9H
2.9H
2.6
2.8

Personal
Income
6.8
6.0L
6.0L
7.5H
6.4
7.0
7.0
6.1
6.0L
6.6
6.4
7.4
6.0L
6.5

Retail
Sales
6.0
4.3
5.2
6.2
5.6
6.0
6.0
6.5
5.5
5.6
6.0
3.6L
7.9H
5.7

Wage &
Salary
Empl.
3.5
2.9
3.2
4.0H
3.2
3.5
3.7
3.2
3.2
3.6
4.0H
3.4
2.6L
3.4

Manufacturing
Empl.
1.2
1.5
1.7
2.4H
1.0
1.5
1.5
1.5
1.3
1.8
1.0
1.7
(0.5)L
1.4

AVERAGE RATE FOR 2001

Construction
Empl.
(2.5)
(4.0)
(4.5)
2.3H
(8.0)
(10.0)L
(5.0)
(5.0)
(5.0)
0.0
0.0
(2.9)
1.0
(3.4)

Services
Empl.
4.0L
5.0
4.1
5.7
4.4
5.5
5.5
4.8
4.5
4.2
6.0H
4.8
4.9
5.0

National
CPI
2.4
2.7
2.8
2.5
2.5
2.5
2.7
3.0H
2.4
2.3L
2.5
2.4
2.5
2.6

Unemployment
Rate
3.3
3.3
3.4
—
3.7
3.0L
3.5
3.8
3.9
3.5
3.1
—
4.0H
3.5

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

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)
81,711*
7.7*
75,869
9.7
69,172
10.1

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

Wage &
Salary
Empl.
(thousands)
1,487.2
4.8
1,418.8
5.5
1,344.2
5.6

Manufacturing
Empl.
(thousands)
161.8
-2.9
166.7
5.2
158.5
4.5

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
3.0
2.6
3.0

GREATER PHOENIX BLUE CHIP • OCTOBER 2000

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

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2000

Arizona Public Service
ASU Real Estate Center
CB Richard Ellis
Communities Southwest
Elliott D. Pollack & Co.
Grifn Consulting
Marcus & Millichap
PricewaterhouseCoopers
U of A, Eller College
Consensus
1999 Actual
1998 Actual

2001

2002

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

35,650
31,000
34,000
30,500
32,000
28,500
34,700
32,000
32,200
32,283
33,262
33,811

7,850
7,500
8,800
6,250
8,000
6,300
8,600
8,000
8,250
7,728
7,759
7,877

6.6%
7.5
6.0
7.3
7.0
7.2
7.1
7.0
—
7.0%
5.9
5.1

5,200
5,500
7,500
4,800
4,500
5,400
7,500
6,800
—
5,900
5,017
3,674

33,000
29,000
32,000
28,000
30,000
27,000
32,000
28,000
23,650
29,183

6,500
7.1%
4,500
31,000
5,500
8,000
8.5
6,000
26,500
7,500
8,100
6.2
8,100
28,000
8,000
5,750
7.6
4,200
26,900
5,500
6,500
7.5
6,000
27,000
6,000
6,100
7.3
5,000
26,000
6,400
8,100
7.4
7,200
30,000
7,700
7,300
8.0
5,700
27,000
7,000
5,800
—
—
21,500
5,400
6,906
7.5%
5,838
27,100
6,556
1999 year-end inventory: 765,732 (single-family)
296,761 (multi-family)

Year-end
Apt.
Apt.
AbsorpVacancy
tion

7.4%
8.0
6.3
7.9
7.5
7.5
7.6
8.5
—
7.6%

4,200
6,250
7,000
4,000
6,000
5,550
7,000
5,500
—
5,688

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

2000

2001

2002

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Absorption

Construction

Absorption

Construction

Absorption

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

2.2
2.7
3.4
3.2
3.2
3.5
3.9
3.0

11.5%
10.0
12.4
11.5
11.7
11.7
10.4
13.0

2.7
3.2
2.6
2.8
2.7
1.8
4.5
2.8

1.8
2.5
2.7
2.5
3.0
1.9
2.6
1.2

12.7%
9.0
12.7
11.5
11.9
11.1
10.1
13.0

1.0
3.0
2.1
2.5
2.6
1.8
3.0
1.2

1.2
1.9
2.0
2.0
2.9
—
—
1.5

12.8%
10.4
12.9
11.3
12.1
—
—
14.0

1.0
2.5
1.7
2.2
2.5
—
—
1.3

Consensus
1999
1998

3.1
4.0
1.8

11.5
11.4
9.3

2.9
1.8
1.6

2.3

11.5

2.2

1.9

12.3

1.9

1999 year-end inventory: 46.2 million square feet

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RETAIL (Millions of Square Feet)
Construction
Arizona Public Service
CB Richard Ellis
Communities Southwest
Grubb & Ellis
Marcus & Millichap
PricewaterhouseCoopers
Consensus
1999
1998

1.6
2.0
2.4
3.5
2.1
1.8
2.2
3.5
1.0

2000

2001

2002

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

9.4%
6.0
9.4
6.0
8.5
9.5
8.1
10.0
9.1

Absorption

Construction

2.0
1.8
1.8
3.4
2.0
1.6
2.1
2.3
1.3

3.0
3.0
2.1
4.5
2.7
1.3
2.8

9.7%
6.5
9.6
6.3
9.0
10.0
8.5

Absorption

Construction

2.5
2.7
1.5
4.1
2.1
1.0
2.3

2.0
1.8
1.8
3.5
—
1.8
2.2

10.1%
6.5
10.1
6.5
—
10.0
8.3

1999 year-end inventory: 88.0 million square feet

Absorption
1.4
1.6
1.4
3.3
—
1.5
1.8

PAGE 4

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GREATER PHOENIX BLUE CHIP • OCTOBER 2000

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

2001

Leaseable
Year-end
Vacancy
6.3%
7.5
6.5
6.8

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

Construction
7.5
7.3
5.8
6.9

Grubb & Ellis***
Consensus–Spec Space

4.0
4.0

12.5
12.5

3.8
3.8

1999 Actual (Total space)
1998 Actual (Total space)

9.5
7.0

8.1
7.1

7.0
8.0

*All space over 5,000 sq. ft.

Absorption
9.5
6.8
5.2
7.2

Construction
6.5
5.5
5.0
5.7
3.5
3.5

Leaseable
Year-end
Vacancy
6.5%
7.9
6.8
7.1

2002
Absorption
8.0
6.4
4.4
6.3

Construction
6.0
5.0
3.5
4.8

3.4
3.4

2.0
2.0

12.8
12.8

Leaseable
Year-end
Vacancy
6.0%
7.6
7.0
6.9

Absorption
6.5
6.5
3.1
5.4

13.0
13.0

1.9
1.9

1999 year-end inventory: 189.8 million sq. ft. (CB Richard Ellis)*
196.2 million sq. ft. (Lee & Associates)*
215.0 million sq. ft. (Grubb & Ellis)**
91.9 million sq. ft. spec (Grubb & Ellis)***

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

***Spec space over 10,000 sq. ft., including single- or multi-tenant buildings

REAL ESTATE FORECAST
Arizona Real Estate Center
Arizona State University
Jay Q. Butler
Arizona Public Service
Brian Cary and Pete Ewen
The University of Arizona, Eller College of Business
and Public Administration
Marshall Vest

CB Richard Ellis
Jeff Cooledge

Grifn Consulting
Brian J. Smargiassi

Communities Southwest
Steven Pritulsky

Grubb & Ellis
George Gramm

PricewaterhouseCoopers
Tom Kabat

Lee & Associates Arizona
T. J. Swearengin

Elliott D. Pollack and Company
Elliott Pollack

Marcus & Millichap
Tim Rios or Dave Wetta

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

ECON-LINC
John Lucking

Arizona Public Service Company
Pete Ewen

H. C. Reardon Economics
Hank Reardon

Arizona State University,
Bank One Economic Outlook Center
Tracy Clark

Joint Legislative Budget Committee
Kent Ennis

Communities Southwest
Steve Pritulsky

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

Salt River Project
Christopher Combe, Melissa Hardison
and Karen Wolfe
The University of Arizona, Eller College of Business
and Public Administration
Marshall Vest

The Maguire Company
Alan Maguire
Elliott D. Pollack and Company
Elliott Pollack

GREATER PHOENIX BLUE CHIP (ISSN 1042-6825) is published
four times a year by the Bank One Economic Outlook Center,
an afliate of the L. William Seidman Research Institute in the
College of Business at Arizona State University. The annual
rate is $39. For information, call the Bank One Economic
Outlook Center at (480) 965–5543.
Arizona State University vigorously pursues afrmative action and
equal opportunity in its employment, activities and programs.
• Not Printed or Mailed at State Expense •

Lancaster Consulting
Dwight Duncan
Vision Econ
Debra J. Roubik

www.phoenixchamber.com

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Valerie Manning, President/CEO