Valley a leader in new apartment construction

Article originally posted on HERE on January 10, 2025

The United States reached another record in new apartment construction for the third consecutive year – and the Phoenix Metro area is among the leaders of the pack, according to rentcafe.com. And Scottsdale was ranked fifth of 12 Valley cities for apartment construction, just behind Goodyear but ahead of Mesa, Chandler and Peoria.

“By the end of the year, developers are on track to complete a staggering 518,108 rental units, marking a 9% increase compared to 2023 and a staggering 30% rise from 2022,” a report from RentCafe said last week.

It also said 2024 was the first year in the nation’s history that completions surpassed the 500,000-unit threshold.

The New York City region leads the list for the third consecutive year, followed by the Texas cities of Dallas and Austin, second and third, respectively, with Phoenix coming in fourth.

A whopping two million apartments are set to come online by 2028 even though uncertainties in most markets are slowing the start of new projects, RentCafe said.

“Furthermore, about 47% of the 369 metros analyzed are likely to build more in the next five years than they did from 2019 to 2023,” it added.

But despite that slowdown in new project starts, it added, “demand for rental apartments in the U.S. continues to outstrip supply” because of a “significant growth in the renter population in the last 50 years.”

“The supply wave has brought 50-year high deliveries to certain metros … but the increased competition is slowing rent growth, especially in booming Sun Belt markets,” said Doug Ressler, senior analyst and manager of business intelligence at Yardi Matrix.

The new construction may not be addressing the affordability of apartments, RentCafe said.

“Most of the apartments built in the last five years, as well as those under construction, are high-end and cater mainly to upper-middle- and high-income renters,” it said.

As for the overall slowdown in new projects launching, the study said, Higher borrowing costs are affecting the multifamily sector, prompting many developers to adjust their strategies for the coming years.

“This means they might focus on lower-risk projects or shift toward markets with strong demand and job growth.”

Doug Ressler, senior analyst & manager of business intelligence for Yardi Matrix, said, “The overall impact on the number of developers might vary by region. In places like Texas, for instance, the demand for apartments remains robust due to factors like corporate migration and high home prices. On the other hand, some markets are seeing a slowdown in new construction starts due to the economic environment.”

The study noted that some developers “are noticing a shift in the market, with land sellers becoming more open to negotiation.

“This, along with reduced labor costs, is creating opportunities for those with a long-term perspective — even in areas currently experiencing oversupply. The outlook for these markets is expected to improve significantly within the next year and a half.”

“Most markets won’t see the impact of rapidly falling starts translating to lower completion levels until the second half of 2025, and more likely in 2026,” Ressler explained. “All said, this massive drawdown in starts across all regions sets the stage for a very different industry trajectory come 2026 and 2027.”

Specifically, following the record-high 518,108 apartments completed this year, developers are expected to deliver 440,478 new units in 2025, which will be a 15% decline in completions compared to 2024 levels.

Then, the pace of construction is projected to slow even more through 2027 when new apartment openings are expected to reach a 10-year low with 319,000 rentals nationwide.

“After that, a significant surge is expected in 2028, when about 391,000 apartments are set to come online — up by nearly 23% compared to the year prior,” RentCafe said.

Phoenix secures the fourth spot with an estimated 20,141 new apartments expected to open across the metro area before the end of 2024.

“Most of this construction is concentrated in Phoenix proper, and developers are on track to deliver 7,389 units, representing nearly one-third of all apartments slated for completion in the area,” it said.

“Once dubbed America’s least sustainable city, Phoenix is now actively combating climate change and water scarcity in an effort to become ‘the world’s most sustainable desert city,’” the study said.

“This shift towards sustainability could be one of the reasons why the city has been attracting more and more environmentally conscious businesses and residents in recent years, thus driving demand for apartments for rent in Phoenix.”

RentCafe’s study is based on an analysis of new apartment construction data across 369 U.S. metropolitan areas and was based apartment data related to buildings containing 50 or more units.

The data data was provided by its sister company Yardi Matrix, a business development and asset management tool for brokers, sponsors, banks, and equity sources underwriting investments in the multifamily, office, industrial and self-storage sectors.

Apartment projections at the metro and city level for 2024 were calculated based on a Yardi Matrix proprietary algorithm that includes confirmed and likely completions for 2024 based on the issuance of a certificate of occupancy.

After the certificate of occupancy is issued, the status of the property can be considered “completed.”