Why Arizona, Nevada & Colorado
Exceptional Growth. Arizona, Nevada & Colorado boast three of the fastest growing state economies in the U.S. over the past 60 years. And yet, despite leading the way for over half a century, these states have shown no signs of fatigue in recent years as the pace of growth has continued to far outstrip that of the broader nation.
Population growth
Decade after decade Arizona and Nevada have led the nation in population growth, benefitting from a high quality of life, low cost of living, warm climates, low taxes, and significant domestic in-migration, especially from high-cost and tax-prohibitive areas in California and the Midwest. Colorado, too, has far outperformed the broader nation.
Among cities with over 1 million residents, Phoenix led the nation in 10-year population growth from 2010-2020, at 11.2%, and during the decade, surpassed Philadelphia to become the nation’s fifth largest city.
Employment and personal income growth
Not only have new households grown rapidly in Arizona, Nevada, and Colorado over the years, but new businesses have as well, given the pro-business climate.
Employment and personal income growth in each state has consistently outperformed the nation.
Phoenix and Denver are well-diversified at this point with no sectors comprising more than one-fifth of either metro’s employment activity.
And while Nevada (Las Vegas at least) is well-known as an international tourism draw, the state added meaningful economic drivers recent years, including Apple, Amazon, Tesla and Google, as well as the state’s first two major professional sports teams, the Las Vegas Knights (NHL) in 2017 and the Las Vegas Raiders (NFL) in 2020.
Well positioned for the next cycle
Unlike the Great Recession, during which the Arizona, Nevada, and Colorado economies experienced long drawn out downturns due to fundamental economic problems, the fundamentals of each state’s economy were quite strong leading into the COVID-19 pandemic, and continue to be strong coming out of it. There was no real estate asset bubble leading into the world health crisis, no massive oversupply, and no financial market turmoil. Looking forward, the Federal Reserve is now preparing to embark on a path of monetary easing. In such an environment, Delphi believes the regional economies and housing markets in Arizona, Nevada, and Colorado will quickly regain their positions among the top performing markets in the country.
As such, Delphi is focused on seizing opportunities to acquire well-located assets in these markets at favorable pricing, and to benefit from resumed growth, which we expect will be quite rapid in the months and years ahead.
Superior rent growth
In reviewing the most recent cycle, from the trough of the Great Recession to the COVID-19 peak, effective rent growth in major Arizona, Nevada, and Colorado metros handily outperformed rent growth in the broader nation.
Source: RealPage Analytics
Where we go from here
Despite initial predictions of massive distress due to the Federal Reserve’s rate hiking campaign to combat inflation, very few forced sales have actually materialized over the past two years. Unlike the distress that was seen during the Great Recession, which was caused by loose lending practices and massive oversupply, today’s residential market is characterized by substantial and systematic undersupply. With continuing obstacles to building, including land use restrictions, constant labor shortages, and supply chain issues leading to rising material costs, the housing undersupply is expected to persist, and such undersupply should be a major boon for the rental housing market for years to come.
With interest rates now projected to gradually decline over the next 18-24 months, we expect attractive opportunities will arise, particularly in high growth markets such as Arizona, Nevada, and Colorado. This environment will benefit investors and owner-operators who can navigate limited inventory, source appealing value-add opportunities, execute on plans for property improvements, and deliver superior returns. With the track record to back it up, Delphi is well-positioned and poised to deliver.