By Rob Jafek, Principal | Boomerang Capital Partners
Maybe it’s a hangover from Valentine’s Day but we have been falling in love with Arizona all over again. It’s easy this time of year when the weather is nice and spring is in the air. And, if we forget how good we’ve got it, we have plenty of people coming into town to remind us how different (and better) our weather is.
And it’s not just tourists, businesses have noticed a rise in the potential workforce too. People seem to love Arizona! The list of businesses that are feeling the love too tends to be dominated by the two mega-projects of TSMC and Intel. Because those projects are so big, it’s easy to overlook the breadth of other projects. Any other city would be proud to have just one of any of the other projects from Nestle, Corning, Solvay, Kohler, Procter and Gamble, Boeing (and their cool PhantomWorks), Virgin Galactic (and their cutting-edge spaceships), all of the electric car companies (Tesla, Nikola, Lucid), a bunch of mining companies, and the list goes on.
While people tend to focus on the eye-popping price tags of those two big projects, with TSMC spending 40 billion dollars on their plant and Intel spending 20 billion, the job creation is actually much more interesting when seen in combination with all the other projects being developed in the Valley. While the tech sector, which includes TSMC and Intel, is projected to create 46,000 jobs, other sectors are expecting even more significant growth in jobs: Automotive/ Transportation with 115,000+ new jobs announced, Biomanufacturing with 16,000+ new jobs announced, and Energy with 15,000+ new jobs announced. All of those industries group together under manufacturing, and in 2023, Phoenix was #1 in the US for manufacturing jobs, according to the Bureau of Labor statistics. We beat out some pretty heavy competition from the likes of Atlanta and Austin. Of note is that none of the cities in California ranked in the top 10, surprise! And that’s not all, Phoenix is currently competing for another 5 billion dollar chip plant.
This significant increase in manufacturing jobs has a ripple effect across all employment sectors. These new developments require support and those relevant industries are showing similar growth as well, with health care adding 17,000 jobs in 2023, and leisure and hospitality adding 12,500 jobs in 2023.
Why do companies choose to move to or establish themselves in Arizona? In other words, what are the merits of locating in the Valley of the Sun? The top of the list includes skilled labor, strategic location, robust infrastructure, and a business-friendly environment. The success of Phoenix’s manufacturing sector, in particular, is attributed to a combination of factors, including innovative technologies, streamlined processes, and skilled workforce development initiatives. By embracing automation, data analytics, and other cutting-edge solutions, manufacturers in Phoenix are optimizing efficiency, reducing costs, and therefore enhancing competitiveness, a true win-win all around.
So, how does this relate to real estate investment? Easy, people need a place to live. More jobs means more people (as you can see when trying to commute on any of the highways or freeways in the Valley). And people just don’t want to commute, so there will be continued pressure to re-develop homes. You can see this play out in housing numbers; while the new build market is large, it is nowhere near the number of homes that are purchased with the intent of redeveloping (aka fix-and-flip). In commercial markets, new builds are called ‘greenfield’ projects while redevelopments are called ‘brownfield’. Those brownfield projects are considered lower risk because the infrastructure is in place, the zoning is stable, the project is quicker to complete and there are fewer unknowns (aka surprises) and all of these are equally applicable to the residential market.
Bottomline, Arizona is getting the love it deserves. Industries from Amazon and Intel to LG Energy Solutions and Discount Tire, see Arizona as a place for growth and success. “Arizona is experiencing unprecedented economic growth, delivering increasing economic opportunities to residents across the state,” said Sandra Watson, President and CEO of the Arizona Commerce Authority. Hand in hand with that growth in economic opportunities is the demand for infrastructure that supports an increasing workforce. Highways and roadways, public works, and most importantly: housing. Arizona real estate investors have a very bright future before them, one filled with optimism and growth potential.