Phoenix Apartment Rents Post Positive Growth to Start the Year

Article originally posted on CoStar on February 21, 2024

Following steep losses through the second half of last year, the Phoenix apartment market finally posted positive monthly rent growth in January.

The average asking rent increased 0.3% in the inaugural month of 2024, the largest increase since May 2022.

While last month’s gain lags the 0.5% growth that the Valley averaged in January from 2015 to 2019, it is a noticeable diversion from trends seen over the prior 18 months. Since mid-2022, apartment owners and managers have contended with flat or negative rents as a barrage of new construction flooded the market.

Looking across the quality spectrum, luxury communities were the outperformers, though all segments landed in positive territory. The average asking rent among four- and five-star properties increased 0.5% in January, while midtier rents rose 0.2% and workforce housing complexes grew 0.3%.

The strong start to the year comes on the heels of rebounding renter demand. Net absorption, which measures the change in occupied rental units, climbed above historical norms in 2023 amid moderating inflation and improving consumer confidence. Last year, Phoenix recorded more than 10,000 units of positive absorption, well outpacing the 7,200 units of absorption the market averaged in the five years leading up to the onset of the pandemic.

Despite the encouraging month, the increased use of discounts to compete for tenants could mean that effective rent levels are still declining. The share of Phoenix apartments offering some form of concession has risen from the single digits in 2021 to nearly 40% in 2023. Renters are most likely to find free rent at newly completed luxury properties in high-growth areas. About six to eight weeks of free rent are standard at many of these communities.

Moving forward, one month of data is likely too early for owners and operators to declare victory on the rent growth front. Another 15,000 units are scheduled for completion this year, on top of the nearly 34,000 total units that came online in 2021 and 2022. As a result, heightened competition from new supply is expected to put more pressure on vacancies and keep rent growth tepid.