Why 2018 could be the Tucson Multifamily Market’s Strongest Year since 2006.
In 2017, the Tucson Multifamily market continued its hot streak. Vacancy rates fell to 6.5 percent due to the commitments made by several national corporations such as Raytheon, Comcast, and Caterpillar to set up new and additional operations in Tucson. This is why Tucson was ranked number 3 in the entire country in 2016 for job growth! This has resulted in population gains and additional construction and development activity. In 2018, there will be an estimated 7,600 net new jobs created in Tucson compared to 5,300 in 2016 according to economist George Hammond from the Eller Business Research Center. There has certainly been a lot of optimism around town about the direction of development in Tucson. In line with the strong performance of the national economy, Tucson is primed for a record setting year in real estate. Rents and market activity are trending in an upward direction in ALL submarkets! Who thought a five percent increase in rent per year in the Tucson market was possible just a couple of years ago?
One of the major changes in 2018 is obviously the passing of the Tax Cuts and Jobs act, the first major tax code adjustment in over thirty years. Commercial Real Estate groups such as NAIOP and Real Estate Roundtable have praised the bill which expands existing tax benefits when owning commercial real estate. This includes a 20 percent deduction for income from partnerships and pass-through entities as well as reducing the depreciation schedule for commercial properties by 14 years. This will give owners the chance to reap the tax benefits on acquired property quicker. The bill also contains a tax exemption for real estate based businesses on interest deductibility restrictions while preserving the 1031 exchange and the 20 percent Historic Tax Credit associated with rehabilitating historic buildings.
This overhaul of the tax code, along with the impressive performance of the national and local economy sets the stage for possibly the strongest year in over a decade in the Tucson market. Sales velocity is up 40 percent compared to 2016 and prices still continue to rise. Despite all of this change, cap rates have also been steady. These cap rates will continue to attract investors looking to maximize their gains compared to competing markets. Sales activity in 2017 was almost at an all time high since 2006. If these trends continue, 2018 could be the year. It is a sellers market. Now is a great time to list your property! Want to know what it is worth? Please contact me at 520-400-9811 or send an email to firstname.lastname@example.org to schedule a free consultation.