Phoenix is Rising

While Phoenix may not attract as much attention as some other high-growth markets, new residential, commercial and retail construction projects are redefining the Valley of the Sun.

Although 2006 residential construction in the Valley of the Sun isn't expected to quite hit the record levels of 2005, the amount of construction activity in the Phoenix housing market would be off the charts in almost any other U.S. city.

With 53,960 single-family home building permits in 2005, Phoenix ranked second only to Atlanta in single-family home building permits issued in 2005, according to the National Association of Home Builders (NAHB), Washington, D.C.

Residential development in Phoenix is everywhere, according to several manufacturers' reps. “We are seeing growth in every direction that builders can find land to build on,” said Robert Jones of Bob Jones & Associates, a Phoenix-based manufacturers' rep. “The area between Phoenix and Tucson is hot, as well as areas to the west and north. Infill construction is strong, as people want to locate in central Phoenix to be closer to their jobs, and not spend up to two hours a day driving to and from work from the outlying areas.”

Single-family housing starts are growing primarily in the west and northwest parts of the valley, in towns such as Glendale, Surprise, Peoria and Avondale, said Bruce Trapkus, a manufacturers' rep with Phoenix-based Kanouse Harper Electrical Sales.

Buildable lots are becoming scarce in the Phoenix metropolitan area and Scottsdale, he said, where the price of land has tripled in the past two years. “The outlying areas are affording the best growth opportunities today, and major developers are taking advantage of these opportunities,” said Trapkus.

Although the numbers may show that residential construction might be down slightly from record levels, Scott Liles, executive vice president/general manager of Edson Electric Supply Inc., Phoenix, said it's hard to say residential growth has slowed much at all. If residential building really has cooled off any, he said it's probably provided an opportunity for commercial contractors to fill in the rest of the infill construction with gas stations, grocery stores and other light commercial buildings that always follow residential development. “As the market continues to spread out in Phoenix, the commercial building has to catch up just to keep the residential construction going,” he said.

Steve Smith, president of Desert States Electrical Sales, a manufacturers' rep based in Phoenix, agrees that because of the amount of residential building in 2005, the infrastructure is trying to catch up. “We have tons of road work trying to catch up with all the sprawling residential stuff,” he said.

Because of rising land prices, Phoenix is seeing a change in its residential mix to more luxury-condo projects, primarily in the Phoenix corridor and throughout the Scottsdale area. Most of these are high-end projects, with owners ranging from Donald Trump to all of the other major condo developers in Arizona and Las Vegas. This new trend also includes high-rise condos near major retail stores and restaurants in the Biltmore area of Phoenix and in southern Scottsdale.

The Phoenix metropolitan area saw $706 million in construction value of four-story or higher residential-related projects that have started since 2004, according to McGraw-Hill Construction's Dodge Reports.

“It seems like in just the past several years condo construction has really taken off as property values have increased,” said Liles of Edson Electric Supply. “A lot of it has had to do with second-home buyers not wanting the maintenance of a single-family dwelling for their second home. People want to get away from hurricanes and that sort of thing. We see downtown buildings being converted into multi-family. We see several new projects in the Old Town section of Scottsdale and in Tempe. There seems to be a definite increase in the high-rise multi-family market.”

The conversion of apartments into condos is also popular, said Smith of Desert States Electrical Sales. “With rising home prices, a lot of apartment houses and owners of these apartment houses have decided to convert because they can sell what were apartments as condos and make a ton of money on each unit,” he said.

In addition to all of the residential construction in the Valley of the Sun, several huge construction projects are underway or on the drawing boards in Phoenix. The new stadium for the National Football League's Arizona Cardinals will open this August. It will feature a retractable roof and will be the first in North America to feature a fully retractable grass playing surface. The stadium will seat 63,000 fans and can expand to 73,000 for even larger events.

In addition to hosting Cardinals games, the stadium will host the Fiesta Bowl annually, college football's championship game in January 2007, and the Super Bowl in February 2008. The new stadium is in Glendale, next to the National Hockey League's Phoenix Coyotes' arena, and where retail-construction giant Wescor plans to build a huge new retail and restaurant development. Wescor also plans to build a new retail development in Tempe, said Trapkus of Kanouse Harper Electrical Sales.

Construction is also taking wing at Phoenix Sky Harbor International Airport, where a $2 billion-plus expansion will include the construction of a 33-gate terminal. The new terminal could be finished by 2012.

Other large construction projects in the Phoenix metropolitan area include Intel Corp.'s new chip-fabrication plant, a new light-rail system running from Phoenix through Tempe, updated facilities for the Arizona State University in Tempe and Phoenix, new hotel construction in downtown Phoenix and major retail developments in Scottsdale's Old Town neighborhood. “This list could go on and on,” Trapkus said.

While building permits may be down, electrical distributors and reps in Phoenix are still looking for several good years. Herm Isenstein, president of DISC Corp., Orange, Conn., forecasts that electrical distributors in the Phoenix metropolitan statistical area (MSA) will sell $887 million in electrical products this year.

“You're talking about double-digit growth — 11 percent, 12 percent growth for this year,” said Trapkus. “Next year? The same. I don't see any change to that for some time.”

One Phoenix electrical distributor is looking at growth that dwarfs even those healthy rates. Liles of Edson Electric said his company's sales were up 37 percent last year and up 30 percent in 2004. He expects sales to be up this year by another 30 percent.

“We don't feel our market will see much change over the next few years,” said Jones of Bob Jones & Associates. “Our economy is strong and people keep moving to Arizona. It's a great place to be in business.”

Phoenix by the Numbers

2006 sales through electrical distributors

$887 million in sales, according to forecast data provided by DISC Corp., Orange, Conn., for

Population growth

The Phoenix MSA's 3.6 million population (2004 estimate) is expected to grow 13.8 percent to 4.2 million residents by 2009.

Building permits

February 2006 Year-to-Date: 8,667 building permits year-to-date is about even with building permits in February 2005. 2005 total annual building permits: 62,380 permits, down 4.4 percent from 2004, but significantly higher than previous years. (Source: NAHB).

Major construction projects underway and on the books

Big jobs include Intel Corp.'s new chip-fabrication plant, Cardinals Stadium, luxury condo conversions throughout the Phoenix metropolitan area, hotel construction in downtown Phoenix and expansion at Arizona State University.

If you need additional sales forecast data, building statistics, related demographic data, or contact information for the electrical distributors, independent manufacturers' reps, electrical contractors and other end users serving the Phoenix market, check out Market data is available for sale either by individual market or on a national basis.

TAGS: News Watch
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