GREATER PHOENIX BLUE CHIP • FOURTH QUARTER 2007 ...............................................................................

PAGE 1

FOURTH QUARTER 2007 Volume 19, Number 4

Phoenix housing market: The worst is yet to come
The worst is yet to come for the Greater
Phoenix housing market, according to the
Greater Phoenix Blue Chip panel. Although
2007’s estimate for single-family permits of
32,000 units is just about half of the total of
only two years ago, another decline – to just
above 30,000 units – is expected in 2008.
The panelists anticipate a rebound in 2009
to around 36,600 units, about a 20 percent
gain. This still would, however, be well
below 2005 and 2006 levels. The diversity
of the panel’s opinion regarding 2009
single-family permits is substantial, with
a range of permit estimates from 29,000 to
48,000 units.
The outlook for multifamily activity is
more sanguine. Apartment permits should
remain relatively stable with more than
5,500 permits this year, 5,600 permits in
2008 and 6,100 permits in 2009. Vacancy
rates are also expected to stay relatively
level at about 7.0 to 7.5 percent over that
period. Interestingly enough, absorptions
– which were actually negative last year –

are expected to be only slightly positive, at
about 2,400 units this year, and more than
4,000 units in both 2008 and 2009.
The area’s commercial markets have
remained strong. However, weakness is
expected past this year. After office construction of about 2.2 million square feet
in 2006, the construction forecast jumps
to 3.6 million square feet in 2007, and is
anticipated to be roughly 3.3 million square
feet in 2008. Office construction is then
forecasted to fall off to about 2.2 million
square feet in 2009. Absorption is expected
to slow from 2.2 million square feet in
2006 to an estimated 1.9 million in 2007
and 1.6 million next year. Vacancy rates,
which were 12 percent at the end of 2006,
are expected to be closer to 14 percent by
the end of 2007 and over 15 percent in the
fourth quarters of 2008 and 2009.
The old adage of retail following rooftops
continues to hold true, as a record amount
of construction will take place in 2007
according to the panel’s forecast. After 4.5

million square feet of retail construction in
2006, the panelists expect more than 8.6
million square feet to be built by the end
of 2007. Retail construction is expected to
slow to 7.4 million square feet for 2008 and
6.3 million square feet in 2009. Vacancy
rates should stay in the 7 percent range for
the forecast period.
The outlook for the industrial market,
according to the panel, remains surprisingly
strong. A record level of construction is
expected in 2007, and most of the participants expect construction to remain strong
in 2008 with only a modest drop in 2009.
Vacancy rates are expected to increase over
that period as absorption in each year is less
than new construction.
Overall, the outlook remains less than
favorable for the single-family residential
markets throughout the forecast period.
Although the outlook is positive for the
commercial markets, 2007 will clearly be
the peak of this cycle.
— Elliott D. Pollack

Weak housing market continues to weigh on economy
It is clear that the national, state and
local economies have hit strong headwinds and that 2008 will continue the
slowing trend we have already seen. It is
not certain that the economic slowdown
will officially be labeled a recession,
but the practical difference between a
recession and a significant slowdown
is small.
We know that the slowdown in the
housing market is finally making itself
felt. Construction employment is falling
and there has been a substantial drop in
activity in the real estate market. Interestingly, the biggest impact of the housing
slowdown that has showed up in the num-

bers so far is the drop in auto sales. Auto
sales for Arizona started slowing in the
latter part of 2006 and have been negative
or flat since December of 2006. We don’t
have directly comparable data for the U.S.
as a whole, but the survey-based data that
is available suggests that while the growth
of auto sales has slowed significantly, it
has yet to go negative. Home owners are
no longer able to extract equity from their
houses – an activity that was potentially
more widespread in markets like ours
where price appreciation was rapid. The
very high level of activity in the housing
market also provided extra income to parttime real estate agents and some workers

in the mortgage industry, and income
from rental housing. Dropping auto sales
and slowing growth of other retail result
in significant revenue shortfalls for state
and local government.
The news is not all bad, with international exports likely to rise and some
good prospects that oil prices will stabilize and eventually start to decline somewhat. The dollar has declined enough
recently to encourage exports to trading
partners in Europe, Canada and some
other non-Asian countries. The dollar
decline against Asian currencies has been
much less pronounced.
— Tracy Clark

PAGE 2

................................................................................

GREATER PHOENIX BLUE CHIP • FOURTH QUARTER 2007

GREATER PHOENIX ECONOMIC FORECAST FOR 2007
ANNUAL PERCENT CHANGE 2007 FROM 2006

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

Population
3.0
3.4 H
3.0
3.4 H
3.0
3.0
3.2
3.0
3.1
3.1
3.0
3.0
3.3
2.9 L
3.1

Personal
Income
6.9
7.5
7.2
7.1
7.0
7.2
7.0
7.0
7.2
7.6
6.4 L
7.7
8.2 H
6.7
7.2

Retail
Sales
6.1
9.0 H
1.5 L
6.2
6.0
6.8
2.5
6.5
5.5
7.4
5.2
7.0
4.6
6.3
5.8

Wage &
Salary
Empl.
3.5
4.1 H
2.7 L
2.7 L
3.2
3.7
3.5
3.6
3.5
4.0
3.2
3.1
3.4
3.1
3.4

Manufacturing
Empl.
0.1
0.5
-0.1
-0.8
-1.5 L
1.2
-1.0
0.5
1.0
2.5 H
0.2
1.0
1.5
1.6
0.5

AVERAGE RATE FOR 2007

Construction
Empl.
-10.0 L
6.0 H
-7.0
-0.9
-5.0
-5.0
0.0
0.0
-5.0
0.0
-6.0
-3.0
-5.7
4.0
-2.7

Services
Empl.
4.1
4.5
3.6
3.5 L
3.5 L
4.8
4.5
4.6
4.5
5.0
4.2
4.2
5.4 H
4.5
4.4

National
CPI
3.1
2.8
2.6
3.1
2.6
2.8
2.8
2.2
2.7
3.2 H
3.0
2.1 L
2.7
2.7
2.7

Unemployment
Rate
4.3
4.2
4.0
3.1 L
3.5
4.2
3.5
4.6 H
4.0
4.1
4.2
4.0
4.5
4.0

GREATER PHOENIX ECONOMIC FORECAST FOR 2008
ANNUAL PERCENT CHANGE 2008 FROM 2007

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

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

3.0
3.2
2.8
3.3 H
2.8
3.0
2.7 L
3.0
3.0
3.2
2.9
3.0
2.8
2.7 L
3.0

6.8
7.5 H
6.5
6.7
6.8
7.2
6.0
7.0
6.9
7.5 H
5.8
7.3
5.0 L
6.3
6.7

6.4
8.5 H
0.8 L
6.5
5.8
6.5
1.5
6.5
5.5
7.5
4.6
6.8
2.5
6.7
5.4

3.3
4.4 H
3.3
1.8
3.0
3.5
2.0
3.7
3.2
4.0
2.8
3.0
0.7 L
2.2
2.9

-0.5
0.0
-0.5
-0.1
1.0
0.7
0.0
0.5
1.0
2.0 H
0.0
1.0
-0.6 L
1.0
0.4

AVERAGE RATE FOR 2008

Construction
Empl.
-5.0
5.0 H
-5.0
-4.9
-7.0
0.0
-10.0
0.5
0.0
0.0
-8.0
-1.0
-15.4 L
0.0
-3.6

Services
Empl.

National
CPI

4.0
5.0 H
3.0
2.9 L
4.0
4.6
3.0
4.9
4.0
5.0 H
3.8
4.2
3.3
4.0
4.0

2.9
2.4
2.4
3.0
2.6
2.7
3.0
2.0
2.4
3.3 H
3.2
2.1
1.8 L
2.7
2.6

Unemployment
Rate
4.4
3.7
4.2
3.3 L
4.0
4.3
4.0
4.6 H
4.2
4.2
4.6 H
4.0
4.6 H
4.2

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

2006
2005
2004
* Estimate

Population
(thousands)
3,764
3.5%
3,636
3.9%
3,499
3.2%

Personal
Income
(millions)
131,729*
8.4%
121,521*
9.4%
111,104
8.6%

Retail
Sales
(millions)
43,821*
8.2%
40,500
14.2%
35,466
9.6%

Wage &
Salary
Empl.
(thousands)
1,827.0*
4.8%
1,743.1
6.2%
1,641.2
4.2%

Manufacturing
Empl.
(thousands)
134.0*
1.4%
132.2
2.5%
129.0
0.5%

Construction
Empl.
(thousands)
174.2*
6.8%
163.1
15.8%
140.9
9.3%

Services
Empl.
(thousands)
744.8*
5.5%
706.0
6.7%
661.6
5.6%

National
CPI
201.6
3.2%
195.3
3.4%
188.9
2.7%

Unemployment
Rate
4.0*
4.1
4.4

GREATER PHOENIX BLUE CHIP • FOURTH QUARTER 2007 ...............................................................................

PAGE 3

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
RESIDENTIAL
2007

ASU, Realty Studies
CB Richard Ellis
Commerce Realty Advisors
Elliott D. Pollack & Co.
Griffin Consulting
Grubb & Ellis/BRE Comm.
Southwest Growth Partners
U of A, Eller College
CONSENSUS

2008

2009

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

Year-end
Apt.
Vacancy

Apt.
Absorption

Singlefamily
Permits

Multifamily
Permits

33,400
32,000
31,000
32,000
34,500
34,000
31,400
28,700
32,125

5,000
7,000
6,000
6,000
4,700
5,000
4,200
6,700
5,575

7.0%
6.0%
7.0%
8.0%
7.5%
9.0%
6.6%
NA
7.3%

5,000
4,000
(1,000)
3,000
3,300
(1,000)
3,800
NA
2,443

37,500
26,000
28,000
24,000
37,000
37,500
27,000
25,000
30,250

6,000
8,500
5,400
6,000
4,650
4,500
3,800
6,000
5,606

6.0%
6.3%
7.5%
8.0%
8.0%
8.5%
6.8%
NA
7.3%

6,000
6,000
500
6,000
3,500
3,000
3,200
NA
4,029

43,600
30,000
30,000
29,000
48,000
40,000
38,000
34,500
36,638

7,000
9,200
5,800
5,000
5,300
4,000
5,200
7,400
6,113

Year-end
Apt.
Apt.
AbsorpVacancy
tion

7.0%
6.5%
8.0%
8.0%
6.5%
8.0%
6.4%
NA
7.2%

5,000
6,000
1,000
5,000
5,200
5,000
4,400
NA
4,514

2006 year-end inventory:
Single-family: 1,027,634
321,294
Multifamily:

Actuals from Phoenix Housing Market Letter and ASU:
2006 Actuals
42,423
3,922
5.3% (4,653)

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

Construction

2007

2008

2009

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Absorption

Construction
3.0
4.5
2.0
3.0
3.5
4.0
2.8
3.3

CB Richard Ellis
Colliers International
Cushman and Wakefield
Elliott D. Pollack & Co.
Grubb & Ellis/BRE Comm.
Lee & Associates
Southwest Growth Partners
CONSENSUS

3.6
4.9
4.0
3.5
3.8
2.3
3.4
3.6

13.9%
12.9%
14.2%
13.0%
15.5%
15.0%
12.2%
13.8%

1.3
2.5
1.5
1.5
1.8
1.7
3.0
1.9

Actuals from Lee & Associates:
2006 Actuals
2005 Actuals

2.2
1.5

12.0%
12.9%

2.2
4.2

16.6%
13.6%
15.2%
16.0%
15.0%
18.0%
12.4%
15.3%

Absorption

Construction

0.7
2.3
1.0
1.0
2.0
1.5
2.6
1.6

1.8
2.5
2.0
1.5
3.0
1.5
3.0
2.2

17.1%
13.2%
15.4%
17.0%
14.5%
17.0%
12.0%
15.2%

Absorption
1.1
2.4
1.5
1.0
2.3
2.0
3.2
1.9

2006 year-end inventory: 57.7 million square feet

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

Construction
CB Richard Ellis
Elliott D. Pollack & Co.
Grubb & Ellis/BRE Comm.
Southwest Growth Partners
CONSENSUS
Actuals from CB Richard Ellis:
2006 Actuals
2005 Actuals

2007

2008

2009

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Leaseable
Year-end
Vacancy

Absorption

Construction
9.5
7.5
6.8
5.8
7.4

10.6
10.0
7.2
6.8
8.7

6.6%
6.5%
6.5%
6.6%
6.6%

8.1
8.0
6.0
6.2
7.1

4.5
6.5

5.1%
5.3%

5.2
6.7

7.6%
7.5%
6.0%
6.8%
7.0%

Absorption

Construction

7.4
7.0
6.5
5.4
6.6

7.4
6.0
6.5
5.4
6.3

7.5%
8.0%
5.8%
6.8%
7.0%

2006 year-end inventory: 126.3 million square feet

Absorption
7.0
5.0
6.3
5.4
5.9

PAGE 4

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GREATER PHOENIX BLUE CHIP • FOURTH QUARTER 2007

METROPOLITAN PHOENIX REAL ESTATE CONSENSUS FORECAST
INDUSTRIAL (Millions of Square Feet)
2007

2008

2009

CB Richard Ellis*
Cushman and Wakefield**
Colliers International**
Grubb & Ellis/BRE Comm.**
Lee & Associates*
CONSENSUS - Total Space

Construction
10.4
10.3
6.4
9.0
8.5
8.9

Leaseable
Year-end
Vacancy
6.9%
7.3%
7.9%
8.5%
7.8%
7.7%

Absorption
8.2
4.5
6.2
6.0
7.0
6.4

Leaseable
Year-end
Vacancy
8.2%
8.0%
8.2%
8.9%
8.3%
8.3%

Leaseable
Year-end
Vacancy
8.7%
8.7%
7.9%
8.6%
8.0%
8.4%

Actuals from CB Richard Ellis:
2006 Actuals Total Space
2005 Actuals Total Space

7.0
6.3

6.7%
5.6%

6.0
12.3

* All space over 5,000 sq. ft.

Construction
12.4
7.5
5.5
8.5
7.0
8.2

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

Absorption
9.0
5.0
5.4
6.3
6.0
6.3

Construction
10.5
7.5
4.9
6.5
6.8
7.2

Absorption
8.1
5.0
5.3
6.0
8.0
6.5

2006 year-end inventory: 237.5 million sq. ft. (CB Richard Ellis)*
248.2 million sq. ft. (Cushman and Wakefield)**
236.0 million sq. ft. (Colliers International)
240.0 million sq. ft. (Lee & Associates)*
249.0 million sq. ft. (Grubb & Ellis)**

REAL ESTATE FORECAST PANEL
Arizona State University
Realty Studies
Jay Q. Butler
CB Richard Ellis
Jeff Cooledge
Colliers International
Stewart Park
CRA Ltd.
Todd Vesledahl

Cushman and Wakefield
Mark Urbanowicz
Elliott D. Pollack and Co.
Elliott Pollack

Lee & Associates Arizona
Kyle Mecker
Chris Seale
Southwest Growth Partners LLC
Steve Pritulsky

Griffin Consulting
Brian J. Smargiassi

University of Arizona
Eller College
Marshall Vest

Grubb & Ellis / BRE Commercial
Mike Coover

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

EconLit LLC
Dwight Duncan

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Arizona State University
JPMorgan Chase Economic Outlook Center
Tracy Clark
Arizona Department of Commerce
Kent Ennis

JPMorgan Chase
Economic
Outlook Center
Tracy L. Clark, Economics Editor
Elliott Pollack, Topics Editor
Jim Dodson, Editorial Coordinator

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 JPMorgan Chase Economic Outlook Center, an
affiliate of the L. William Seidman Research Institute in the W. P. Carey
School of Business at Arizona State University. E-mail subscriptions
(PDF) are available for $39 for one year (4 issues). For information,
call the Economic Outlook Center at (480) 965–5543.
©2007 Arizona Board of Regents for Arizona State University. Reprint
permission required from the JPMorgan Chase Economic Outlook
Center.
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University of Arizona
Eller College
Marshall Vest
Vision Econ
Debra J. Roubik