Phoenix Apartment Rents Fall for Second Straight Month in August

Article originally posted on CoStar on September 13, 2023

After remaining flat during the first half of the year, Phoenix apartment rents are showing signs of weakness in late summer. Valley multifamily properties recorded a 0.4% decline in average asking rents in August, following a 0.2% reduction in July.

The decline in rents is a departure from typical market conditions and cannot be written off as a seasonality challenge. In the trailing five-year period leading to the onset of the pandemic, Phoenix multifamily operators averaged rent growth of 0.4% per month in July and August. The cumulative rent loss of 0.6% across the two months represents the worst back-to-back performance since late 2022 and could portend a softer end of the year than initially expected.

Overall, rents are down 2.5% year over year through August, making Phoenix one of the worst rent growth markets in the country. The soft performance is a stark contrast to 2021, when gains surpassed 2% per month for several months, catapulting the Valley to the top of the ranking.

The primary culprit for the recent weakness is the market’s substantial supply pipeline. Although demand has been unexpectedly strong in 2023, it has not been enough to absorb the onslaught of new deliveries. More than 11,100 new multifamily units were completed thus far in 2023 and 34,200 units remain under construction.

Local property managers now are reporting a renewed focus on maintaining occupancy at the expense of topline revenue growth, in response to heightened competition from new supply. This “heads in beds” strategy has resulted in many properties reducing rents or increasing concessions to attract and retain tenants.

Moving forward, rent growth weakness is expected to extend into the final quarter of the year as the persistent supply and demand imbalance weighs on the market. One- and two-star buildings may display greater resilience with most of the new construction focused on the four- and five-star segment.