MARKET SNAPSHOT
The Phoenix multifamily market made notable progress toward recovery in 2024, supported by easing inflation and rising consumer confidence that have fueled renter household formation and strengthened tenant demand. However, new supply additions continue to outpace leasing activity, with the surge in apartment construction posing a significant challenge to market equilibrium. In 2024, developers delivered approximately 25,000 new units—more than double the 10-year historical average. The impact of this construction boom is expected to persist throughout 2025, with about 27,000 units currently under construction, representing 6.7% of existing inventory and positioning Phoenix as one of the most aggressively developed markets in the country.
Even the most capable apartment developers in the Phoenix area are facing mounting challenges, including lower rent growth projections, rising land and construction costs, and elevated interest rates—making it increasingly difficult to break ground profitably. As a result, the pace of construction starts is slowing significantly, with groundbreakings down 52% in 2024 compared to 2023. This slowdown is expected to help alleviate supply pressures beyond this year. For Phoenix property owners and operators, signs of relief are beginning to emerge. New unit completions are expected to total roughly 14,000, a 43% decrease compared to 2024, but still approximately 2,400 units about the prior 10-year average. Still, the market is poised to gradually regain balance this year, allowing rent growth to return to its historical average of approximately 5.0%, as observed during the pre-pandemic period of 2014 to 2019, by 2026 and 2027.
While supply concerns continue to dominate both the narrative and fundamentals of the Phoenix multifamily market, they should not overshadow the record-high net absorption of 19,000 units in 2024—more than doubling the historical 10-year average of approximately 9,000 units per year. Notably, Phoenix ranked among the top seven U.S. markets for net demand last year, reflecting the metro’s strong underlying renter dynamics despite significant supply-side pressures.
The resurgence in rental demand is providing a much-needed counterbalance to the supply challenges that have persisted over the past two years, helping to mitigate a more pronounced downturn in occupancy. Despite the record 25,000 new units delivered in 2024—the largest supply expansion in the last four decades—stabilized occupancy rates experienced only a modest 20-basis-point decline year-over-year, settling at 92.0% by year-end. Meanwhile, the overall occupancy rate, which includes newly constructed properties in lease-up, declined by 100 basis points to 88.3%. While any decline in occupancy is cause for concern, the relatively shallow decreases suggest that the market may be approaching the bottom in terms of fundamentals performance.
Looking ahead, short-term challenges are expected to persist in 2025; however, the long-term outlook for Phoenix remains favorable. Strong demographic trends, steady job growth, and a diversified and growing economy continue to support housing demand. Furthermore, with the pace of new deliveries anticipated to slow by 2026, occupancy rates are projected to stabilize over the next 12 months, setting the stage for a more balanced market environment in the years to come.
Increased competition from new supply continued to weigh heavily on Phoenix’s rent growth in 2024, with annual rent gains remaining negative through all four quarters for the second straight year. Average effective rents declined in excess of 2% across all four quarters of 2024, marking the metro’s weakest annual performance since the depths of the Great Recession and positioning Phoenix as the fifth worst-performing market for rent growth nationwide in 2024.
This subdued performance is expected to persist in 2025 as the market works through its sizable construction pipeline. Many properties are reporting declining retention rates, prompting operators to prioritize occupancy over rent increases. This strategy has led to flat or modest renewal rate decreases and increasing usage of concessions. Operators of newly built luxury properties have been particularly aggressive to achieve lease-up, with concessions of six to eight weeks of free rent becoming standard in these properties. The pressure from these heavily discounted new developments is also impacting stabilized properties, with many Class B and C communities in high-supply areas reducing rents and offering concessions to remain competitive.
Looking more closely at the outlook for this year, the Phoenix market is forecasted to see modest improvements in 2025, with rent growth projected to return to positive territory by year-end. However, gains are expected to remain well below the pre-pandemic average of 5.0%, as supply-side pressures continue to challenge the pricing power of Phoenix owners and operators.
12-month period ending November 2024
The Phoenix multifamily market is expected to face continued short-term challenges in 2025 as new supply additions remain elevated. However, strong underlying demand fundamentals provide a positive long-term outlook. Despite record-breaking deliveries in 2024, which expanded the metro’s inventory by the largest margin in four decades, renter demand remained resilient, with net absorption reaching a record-high 19,000 units—more than double the historical average. This robust demand has helped mitigate the impact of supply pressures, with stabilized occupancy rates experiencing only a modest decline to 92.0% by year-end 2024. Although competition remains fierce, particularly in high-supply submarkets such as Downtown Phoenix and Tempe, the market’s ability to absorb new inventory suggests it is nearing the bottom in terms of property performance.
Looking forward, Phoenix’s multifamily market is poised for gradual stabilization as the pace of new deliveries begins to slow by 2026. Supply-side pressures are expected to ease, allowing occupancy rates to stabilize and rent growth to return closer to the pre-pandemic historical average of approximately 5.0% by 2026 and 2027. Strong demographic tailwinds, including healthy job growth and continued in-migration, will further support market fundamentals and sustain demand. While the near-term outlook remains challenging, with operators focusing on occupancy retention strategies, the long-term prospects remain favorable as Phoenix continues to solidify its position as a key destination for both renters and investors.
