GREATER PHOENIX BLUE CHIP • NOVEMBER 2001

VOLUME 13 • NUMBER 4 • NOVEMBER 2001
........................................................................................... PAGE 1

™

B
L U E • C H I P • E C O N O M I C • F O R E C A S T
.........................................................................................................................................................

Residential and commercial markets face uncertainty
The uncertainty due to the economic
recession and the effect of the Sept. 11
tragedy is evident in the most recent
Greater Phoenix Blue Chip Real Estate
Consensus Survey. Three quarters of data
are available for 2001, yet the estimates for
single family permits range from 26,500 to
36,000 units. This is a very wide spread of
estimates by historic standards. For 2002,
the range is from 18,000 to 33,500 single
family units.
Overall, the consensus calls for only a
minor decline this year. The consensus
for next year, however, drops by more
than 15 percent, with a modest recovery
expected in 2003. Multi-family units are
also expected to decline. Yet, vacancies in
multi-family are expected to increase to
7.9 percent, 8.2 percent and 8.3 percent in
2001, 2002 and 2003, respectively.
Significant declines in construction are
anticipated in commercial markets. Almost

3.9 million square feet of office space are
expected to be built in 2001, but that number
drops by more than half (1.6 million square
feet) next year and is expected to decline
even further (1.0 million square feet) in 2003.
This is because vacancy rates in the office
market are expected to increase dramatically
in 2001. The fourth quarter 2000 vacancy
rates were 10.8 percent, but are expected to
increase to 15.6 percent and 16.3 percent
for 2001 and 2002, respectively. A slight
recovery in vacancy rates to 14.7 percent is
likely in 2003 for the office market.
Construction declines also are expected
in the retail market. The consensus calls
for construction dropping from almost 4.0
million square feet to 2.0 million and 1.9
million square feet, respectively, in 2001,
2002 and 2003. Absorption in the three
years of the consensus forecast is expected
to be 1.9 million square feet, 1.5 million
square feet and 1.6 million square feet,

respectively. Vacancy rates are not expected
to be a major problem in retail.
The industrial market also is expected
to drop as absorption slows this year from
4.9 million square feet to about 3.9 million
square feet in 2002. Vacancy rates in
industrial, while moving up slightly, remain
relatively stable over the next three years.
Thus, only the office market appears
to have a significant problem in terms of
vacancy rates and recovery time, which
could extend to 2004.
Overall, the survey indicates not only
heightened uncertainty, but that all sectors
of residential and commercial construction
are expected to decline next year (2002)
and, with the exception of single family
housing, declines will continue into 2003.
This is bad news for construction employment, which apparently will lag going into
the recession and lag coming out.
– E.P.

Panel's first look at 2003: Gradual recovery for metro area
Economic forecasting involves analysis
of the past and present to help predict the
future. The events of Sept. 11 rendered
the past and current economic data largely
useless, for a few months at least. It is clear
that the Greater Phoenix economy will
be negatively affected, but the scope and
duration of the impact is unknown.
Nationally, the third quarter had been
drawing close to negative territory; after
Sept. 11, a negative quarter was virtually
certain. The forecast for the fourth quarter
has shifted from a mild positive to more
likely negative. First quarter 2002 prospects
hinge on the duration of overt military
action in Afghanistan. The longer consumers and businesses are distracted by nightly
news reports of military activity, the longer
it will take the economy to recover.
The forecasts for 2001 and 2002 have

been revised downward, with most of the
impact reflected in 2001. Employment
growth already had slowed through August
as manufacturers laid off staff as well as
contract help (business services). The postattack prospects for a near-term recovery in
manufacturing have dimmed. The Greater
Phoenix area has dropped significantly in
the employment growth rankings.
Tourism and the hospitality industry,
along with airlines and the airports, are
likely to bear the brunt of the post-attack
declines in the metro area. The metro
area’s tourism industry is more sensitive
to business spending than the tourism
industries in the rest of the state; it is
possible that many of the canceled meetings and conventions will be rescheduled,
which would mean a boost either late this
year or early next.

The panel was also asked to give a first
look at 2003. The forecast suggests that the
economy will see gradual improvement,
rather than a dramatic rebound.
— T.C.
CONSENSUS FORECAST FOR 2003
Annual Percent Change from 2002
Population...................................
Personal Income.........................
Retail Sales ................................
Wage & Salary Employment.......
Manufacturing Employment........
Construction Employment ..........
Service Employment...................
National CPI ...............................
Unemployment Rate...................

2.8
6.2
6.3
3.2
1.9
2.6
4.1
2.7
3.8

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • NOVEMBER 2001

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

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

Personal
Income
6.1
6.0
5.0 L
6.9 H
5.4
6.0
5.3
6.2
6.0
6.6
6.4
6.1
6.2
5.0 L
5.9

Retail
Sales
4.7
4.0
4.2
7.0 H
5.0
2.7
3.0
2.0 L
4.9
5.7
5.5
5.7
5.3
6.0
4.7

Wage &
Salary
Empl.
1.8
1.7
2.1
3.2
1.0 L
1.2
1.9
2.7
3.1
3.6 H
3.0
1.8
2.7
2.0
2.3

Manufacturing
Empl.
(1.0)
(1.5)
(1.0)
0.8
(2.0) L
(2.0) L
(2.0) L
0.0
0.8
1.8 H
0.5
(1.0)
0.6
0.5
(0.4)

AVERAGE RATE FOR 2001

Construction
Empl.
(2.5)
(4.0)
(5.0) L
2.3
0.0
1.0
2.0
(2.0)
(5.0) L
0.0
(3.0)
3.3
2.7
3.4 H
(0.5)

Services
Empl.
3.1
2.0
1.5
4.9 H
1.7
3.0
2.0
2.5
4.2
4.8
4.2
0.0 L
2.9
2.5
2.8

National
CPI
2.4
2.7
2.2 L
2.9
2.7
2.2 L
3.1
2.8
2.5
2.3
2.7
2.8
3.2 H
3.0
2.7

Unemployment
Rate
3.9
3.8
4.8 H
3.2 L
3.8
3.3
4.5
3.7
3.9
3.5
3.4
3.7
—
3.8
3.8

GREATER PHOENIX ECONOMIC FORECAST FOR 2002
ANNUAL PERCENT CHANGE 2002 FROM 2001

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.

2.7
2.6 L
2.7
2.7
2.8
2.7
2.8
2.8
2.6 L
2.7
2.7
3.0 H
2.7
3.0 H
2.8

5.8
5.8
5.2 L
7.7 H
5.4
6.0
5.7
5.9
5.4
6.3
6.2
6.2
5.9
5.6
5.9

4.5
4.9
5.0
6.9 H
5.2
5.0
4.5
4.0 L
4.7
6.0
6.0
6.0
6.3
6.2
5.4

2.1 L
2.8
2.5
3.7 H
2.6
2.5
3.1
2.8
2.5
3.4
3.4
3.3
2.8
2.8
2.9

AVERAGE RATE FOR 2002

Manufacturing
Empl.

Construction
Empl.

Services
Empl.

(0.8)
0.7
(1.0 )L
1.4
1.0
2.0 H
2.0 H
1.0
0.8
1.6
2.0 H
1.0
1.2
2.0 H
1.1

(3.5)
(5.0)
(5.0)
1.1
(5.0)
(10.0 )L
0.0
(0.5)
(10.0) L
0.0
(5.0)
1.5
(0.3)
4.0 H
(2.7)

3.6
4.5
2.2 L
5.5 H
4.0
5.0
4.5
3.6
3.6
4.8
4.8
3.5
3.7
4.5
4.1

National
CPI

Unemployment
Rate

2.1
2.5
2.4
2.8
3.0 H
2.5
2.3
2.5
2.5
2.3
2.6
2.3
2.7
1.4 L
2.4

3.8
3.7
4.4 H
3.0 L
3.8
3.5
4.2
3.7
4.2
3.5
3.6
3.1
—
3.8
3.7

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
2000
Percent Change
1999
Percent Change
1998
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 • NOVEMBER 2001

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

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2001

2002

2003

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Apt.
AbsorpVacancy
tion

ASU Real Estate Center
CB Richard Ellis
Elliott D. Pollack & Co.
Griffin Consulting
Grubb & Ellis
Marcus & Millichap
Protitlement
U of A, Eller College

32,000
26,500
30,000
28,000
—
36,000
33,500
31,200

8,000
7,200
7,500
6,500
8,500
9,000
5,200
6,200

8.5%
7.9
8.0
7.2
8.5
7.5
7.5
—

6,000
4,500
6,000
5,800
4,500
6,000
4,100
—

24,000
18,000
27,000
25,500
—
33,500
29,000
26,800

7,500
5,000
7,000
5,750
4,500
7,500
4,600
4,400

8.0%
8.7
9.0
6.9
9.0
8.0
8.2
—

6,250
3,500
4,500
5,900
3,000
6,000
3,800
—

27,000
21,000
30,000
30,000
—
34,000
28,000
25,100

7,250
3,500
6,000
6,000
4,500
8,000
4,500
5,000

7.5%
8.2
9.0
7.0
9.2
8.5
8.0
—

6,575
5,000
6,000
5,750
2,000
6,500
4,000
—

Consensus
2000 Actuals
1999 Actuals

31,029
32,511
33,252

7,263
8,009
7,759

7.9%
6.8
5.9

5,271
6,225
5,017

26,257

5,781
8.3%
4,707
27,871
5,594
2000 year-end inventory: 798,278 (single-family)
306,386 (multi-family)

8.2%

5,118

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
OFFICE (Millions of Square Feet)
2001
Construction

Leaseable
Year-end
Vacancy

2002
Absorption

Construction

Leaseable
Year-end
Vacancy

2003
Absorption

Construction

Leaseable
Year-end
Vacancy

Absorption

CB Richard Ellis
Elliott D. Pollack & Co.
Grubb & Ellis
Lee & Associates
Marcus & Millichap
PricewaterhouseCoopers LLP
Protitlement

4.0
4.0
2.3
4.9
3.5
4.5
3.1

14.0%
15.5
16.0
14.4
18.5
15.0
12.8

1.2
1.0
0.5
1.9
-0.5
3.0
2.2

1.6
1.7
1.4
1.5
2.5
1.0
2.4

15.5%
17.5
16.5
13.0
18.2
17.0
13.5

0.6
1.0
1.0
1.9
0.2
1.5
1.8

0.4
1.0
1.2
0.9
1.9
1.0
2.3

14.2%
15.5
15.5
11.1
16.7
15.0
13.0

1.1
2.0
1.5
1.9
1.0
1.0
2.0

Consensus

3.9

15.6%

1.2

1.6

16.3%

1.0

1.1

14.7%

1.4

2000 Actuals
1999 Actuals

3.1
4.0

10.8
11.4

3.1
2.8

2000 year-end inventory: 48.3 million square feet

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RETAIL (Millions of Square Feet)
2001
Construction

Leaseable
Year-end
Vacancy

2002
Absorption

Construction

Leaseable
Year-end
Vacancy

2003
Absorption

Construction

Leaseable
Year-end
Vacancy

Absorption

CB Richard Ellis
Grubb & Ellis
Marcus & Millichap
PricewaterhouseCoopers LLP
Protitlement

3.5
4.0
3.9
4.5
3.0

7.4%
6.0
10.0
11.0
8.4

1.2
3.6
–0.6
3.5
2.6

3.2
2.0
1.5
2.0
2.4

9.5%
6.5
10.0
10.0
8.8

1.0
1.8
1.5
1.5
2.0

2.4
2.0
1.6
1.5
2.5

10.2%
6.5
9.5
10.0
8.5

1.5
2.0
2.0
1.0
2.2

Consensus
2000 Actuals
1999 Actuals

4.0
2.7
4.0

8.6%
5.3
5.5

1.9
2.8
4.4

2.2

9.0%

1.5

1.9

9.1%

1.6

2000 year-end inventory: 93.6 million square feet

PAGE 4

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GREATER PHOENIX BLUE CHIP • NOVEMBER 2001

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
INDUSTRIAL (Millions of Square Feet)
2001

2002

2003

Construction
6.0
6.0
4.5
2.9

Leaseable
Year-end
Vacancy
9.5%
8.0
9.3
8.2

Absorption
3.0
0.5
5.0
2.0

Construction
4.8
3.0
4.3
3.3

Leaseable
Year-end
Vacancy
11.1%
8.3
9.0
7.5

Absorption
1.0
2.0
7.8
3.4

Construction
1.8
2.0
3.5
3.1

Leaseable
Year-end
Vacancy
10.7%
7.8
8.7
7.6

Absorption
2.4
3.0
7.8
3.1

Consensus

4.9

8.7%

2.6

3.9

9.0%

3.5

2.6

8.7%

4.1

2000 Actuals
1999 Actuals

6.5
9.5

7.4
8.1

CB Richard Ellis*
Grubb & Ellis**
Lee & Associates*
Marcus & Millichap

*All space over 5,000 sq. ft.

10.7
7.3

2000 year-end inventory: 196 million sq. ft. (CB Richard Ellis)*
208 million sq. ft. (Lee & Associates)*
220 million sq. ft. spec (Grubb & Ellis)**

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

REAL ESTATE FORECAST PANEL
Arizona Real Estate Center
Arizona State University
Jay Q. Butler
CB Richard Ellis
Jeff Cooledge
Protitlement
Steven Pritulsky

PricewaterhouseCoopers LLP
Tom Kabat

Lee & Associates Arizona
Ken Crouse

Elliott D. Pollack and Company
Elliott Pollack

Marcus & Millichap
Tim Rios or Dave Wetta

Griffin Consulting
Brian J. Smargiassi

The University of Arizona
Eller College
Marshall Vest

Grubb & Ellis
George Gramm

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

ECON-LINC
John Lucking

Elliott D. Pollack and Company
Elliott Pollack

Arizona Public Service
Pete Ewen and Brian Cary

H. C. Reardon Economics
Hank Reardon

Arizona State University,
Bank One Economic Outlook Center
Tracy Clark

Joint Legislative Budget Committee
Staff

Salt River Project
Arlyn Herrera, Rebecca Holmes
and Karen Wolfe

Protitlement
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

Lancaster Consulting
Dwight Duncan

The University of Arizona, Eller College
Marshall Vest

The Maguire Company
Alan Maguire

Vision Econ
Debra J. Roubik

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an affiliate of the L. William Seidman Research Institute in the
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