Boom, Bust, and Bubbles: Apartments and Office Space

Mike Sunnucks posted up another nugget-filled Phoenix Business Journal column recently. Thanks to ScottsdaleTrails reader BL for bringing it to my attention.

The first two of Sunnucks’ predictions for 2015 leap right off the page:

1. Tempe’s building boom: There’s no way all the planned developments and proposed hotels in Tempe are going to get built. The Monti’s and Flour Mill redevelopments, USA Place, TrendEx Holdings’ $1.2 billion proposed project on Tempe Town Lake coupled with Arizona State University’s development district are all poised to add millions of square feet of commercial space to the Valley’s real estate market. There are also several hotels proposed in and around Mill Avenue.

The proposed new space is far more than the whole region — or even the whole state of Arizona — absorbs annually.

Tempe is the tightest office market in the Valley, and there is and will be demand for space especially near ASU and the Metro light rail line. It’s just a race to see which developments and hotels happen and which will never get built.

2. Apartment bubble: At some point, the Phoenix area is going to hit a tipping point with new apartment development. There have been scores of new units coming on the market in recent years geared towards millennials and all those folks who can’t qualify for mortgages because of foreclosures and poor credit.
There is demand for apartments. But just like with other developers there are going to be too many new units chasing too few tenants pretty soon. There are plenty of rental homes in the Valley for families who still prefer a single-family home to apartment living.

There may also be some long-term buyers remorse region wide for approving so many apartment developments on properties that might have had commercial uses in the future.

The apartment building overshoot was predicted in these pages in a 2012 article, and again in October of 2014. It will not only depress apartment rents, it will have negative effects on single-family home rents…and thus property values overall. With an estimated 10,000 apartment units in the pipeline for Scottsdale, we’ll get hit as hard as any other place in the Valley when these chickens come home to roost. Of course, this is yet another factor contributing to a downward spiral of quality of life, away from economic sustainability.

This represents an utter failure on the part of the planning and zoning process in Scottsdale, and a complete lack of leadership from Mayor Jim Lane and the city council majority (including Linda Milhaven, Suzanne Klapp, and Virginia Korte). Don’t look for improvement with the swearing-in of David Smith.

So, I hope you have a Happy New Year…but be aware when you pop the cork on the bubbly tonight, we have a couple of other bubbles ahead of us.

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  1. I can tell you what will happen John….. once we have scores of vacant apartments and condos the mayor and city council will use that as an excuse to promote more growth and “job creation” claiming that we need more development to bring in residents to fill in those empty residential units. It works the other way as well, as illustrated by the recent news about the high density residential development happening in far North Scottsdale. The Mayor & CC claim that business’ up there are struggling because there are not enough residents to provide customers. It’s a vicious cycle of constantly chasing one’s own tail with the ultimate objective of rewarding campaign contributors.

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