Phoenix Apartments Post Strongest Quarterly Gain Since Mid-2022

Article originally posted on CoStar on May 1, 2024

Average asking rent growth in Phoenix’s apartment market remained modestly positive in March, up 0.03% for the month, while rents rose 0.7% overall in the year’s first quarter, the most significant three-month increase since the second quarter of 2022.

The improvement to start the year follows rebounding renter demand. In the trailing 12-month period through the first quarter, the Valley recorded 11,700 units of net absorption or the change in occupied inventory. For comparison, the market averaged 7,200 units of annual net absorption from 2015 to 2019.

The pickup in underlying renter demand is helping to stabilize the market. The first quarter of 2024 marked the first time vacancy did not increase quarter-over-quarter since mid-2021. While a meaningful decrease in vacancy is not expected over the near term because of the substantial construction pipeline, the recent plateauing is an encouraging sign the market may be at or near the bottom in terms of property performance.

Meanwhile, all segments saw rent growth turn positive. Asking rents at workforce housing properties increased 0.3% in the first quarter, with midpriced and luxury complexes rising 0.8% each.

However, elevated concessions may affect effective rent growth at individual properties. About 38% of Phoenix multifamily properties offered some form of discount in the first quarter, up from the single digits in mid-2021.

Prospective tenants most likely will find discounts at newly completed luxury properties in high-construction areas such as Downtown Phoenix, Tempe and the South West Valley. Six to eight weeks of free rent has become the standard for complexes in lease-up, and even stabilized properties often will offer a few free weeks.

Moving forward, expectations are for another year of tepid rent growth as the market digests the record supply injection of the past few years. Builders have completed nearly 40,000 net new units since the start of 2023, and another 32,000 units are underway.