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ytd sales volume
YoY rent change
yoy occupancy change
ytd individual transactions
QUARTERLY DEMAND
YTD: 6,585
QUARTERLY COMPLETIONS
YTD: 9,070
In the Phoenix-Mesa-Scottsdale apartment market, a resurgence in demand began in early 2023 and continued into the second quarter, with a total of 3,401 units absorbed from April to June.
In 2Q 2023, demand reached a total of 3,401 units, signifying the highest level of quarterly absorption since the third quarter of 2021. This resurgence elevated annual demand to approximately 5,200 units for the year ending in the second quarter of 2023, achieving the first positive annual absorption reading in a year.
Though demand improved, it simultaneously fell short of the new supply. In the second quarter of 2023, Phoenix witnessed the delivery of more than 4,700 apartment units. Over the last four quarters apartment inventory has expanded by a staggering 4.2%.
Over the past four quarters, the submarkets of Avondale / Goodyear / West Glendale (12.8%), Central Phoenix (12.0%), and Gilbert (11.6%) experienced the highest net inventory growth.
As the first half of 2023 has shown, the Phoenix market continues to be a powerhouse in apartment demand. This strength is attributed to its relative affordability, strategic proximity to high-cost markets in Southern California, and a flourishing economy.
Demand is projected to remain robust over the next four quarters; however, fundamentals will face challenges due to the anticipated wave of 30,000 units expected to come online during this period.
Despite an uptick in absorption during the first half of 2023, the Phoenix apartment market continues to grapple with significant supply challenges.
As of the end of the second quarter in 2023, approximately 52,500 units were under construction, marking the second-highest level nationally, trailing only behind Dallas.
Average Monthly Mortgage Payment
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An imbalance between supply and demand led to a decrease in Phoenix’s occupancy rate, dipping 2.6 points from the previous year to stand at 93.2% in the second quarter of 2023. This is nearly 300 basis points below the market’s pre-pandemic rate in the first quarter of 2020, marking the weakest occupancy rate in recent memory. Examining the performance of the different product classes in Phoenix reveals a pattern where occupancy either dipped or remained stable across various price ranges. Leading the market were Class B and C assets, with occupancy rates of 93.2% and 93.3%, respectively. In contrast, Class A products experienced a noticeable decline during the quarter, falling by 0.9 points to 92.9%, falling below 93% for the first time in ten years. Submarket-level occupancy also showed muted performance, with all 23 submarkets falling well below the 95% mark. South Phoenix led the market at 94.2%, while Pinal County lagged behind at 91.3%.
With occupancy rates weakening, pricing power in Phoenix continued to diminish. Operators reduced rents by 0.5% quarter-over-quarter, resulting in a 4.0% decrease on an annual basis. This annual performance marked the market’s weakest rent adjustment in 13 years. In a detailed view, rents fell in 22 out of Phoenix’s 23 submarkets over the past year, with the low-supply West Phoenix area being the sole exception, achieving a 2.8% annual rent growth. Among the different product classes, Class C products, known to be more sensitive to affordability constraints, saw the steepest year-over-year rent reduction of 5.6%. Conversely, Class A and B operators trimmed rents by 2.2% and 4.2%, respectively, in the year-ending second quarter.
| Submarket | Average Occupancy | Annual Occupancy Change | Average Monthly Rent | Annual Rent Change |
|---|---|---|---|---|
| Central Phoenix | 93.1% | -2.0% | $1,793 | -3.5% |
| North Central Phoenix | 92.5% | -2.9% | $1,616 | -3.6% |
| East Phoenix | 93.0% | -3.1% | $1,497 | -1.9% |
| South Phoenix | 94.2% | -1.6% | $1,648 | -5.8% |
| West Phoenix | 91.5% | -4.9% | $1,175 | 2.8% |
| Far West Phoenix | 92.9% | -2.9% | $1,381 | -4.2% |
| Northwest Phoenix | 93.3% | -2.4% | $1,303 | -1.0% |
| Northeast Phoenix | 93.7% | -2.2% | $1,517 | -4.4% |
| Deer Valley | 93.1% | -2.3% | $1,757 | -3.1% |
| North Scottsdale | 93.4% | -2.1% | $2,031 | -2.5% |
| South Scottsdale | 93.5% | -2.3% | $1,950 | -3.1% |
| North Tempe/University | 92.9% | -2.6% | $1,748 | -2.5% |
| South Tempe | 93.6% | -2.2% | $1,640 | -3.0% |
| Northwest Mesa | 93.6% | -2.0% | $1,420 | -4.2% |
| Southwest Mesa | 92.7% | -3.3% | $1,421 | -5.9% |
| East Mesa | 93.6% | -2.4% | $1,678 | -5.5% |
| Gilbert | 92.8% | -2.7% | $1,741 | -7.1% |
| Chandler | 93.7% | -2.4% | $1,735 | -5.8% |
| Pinal County | 91.3% | -6.4% | $1,371 | -4.0% |
| Avondale/Goodyear/West Glendale | 92.7% | -3.0% | $1,636 | -6.4% |
| South Glendale | 92.6% | -3.4% | $1,281 | -3.0% |
| North Glendale | 93.3% | -1.6% | $1,601 | -5.7% |
| Peoria/Sun City/Surprise | 94.0% | -2.2% | $1,648 | -4.2% |
Units Under Construction
Units UC Delivering In the Next 4 Quarters
During the first half of 2023, the Phoenix market experienced a considerable decline in transaction volume for conventional multifamily properties. Transaction amounts fell to approximately $1.2 billion, a significant drop from the previous year’s first half volume of $5.3 billion, representing a year-over-year decrease of about 77%. Concurrently, the number of individual transactions also plummeted, going from 135 to just 27. This downturn can primarily be attributed to two key factors: the astronomical increase in finance pricing and the bloated construction pipeline, both of which have been exerting considerable pressure on the fundamentals in Phoenix.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual conventional MF transaction $2.5M +
In May 2023, the Phoenix metro area’s job landscape presented a relatively positive picture. Total nonfarm employment saw an increase of 1.6%, adding 37,500 jobs compared to the same month in 2022, bringing total payrolls to 2.53 million in Phoenix. The education and health services sector sector experienced the most substantial job gains with an addition of 19,700 positions, representing a solid 5.5% expansion. The construction sector saw a healthy increase of 3.2%, which equated to an additional 4,800 jobs. Meanwhile, the leisure and hospitality sector sector, vital for Phoenix’s economy, observed a 3.1% increase, equivalent to an addition of 7,300 jobs. Overall, Phoenix’s unemployment rate dropped 10 basis points year over year to 3.6%.
May Annual Jobs Created
May 23 Employment growth
May 23 Unemployment rate
3.4% us may rate
| Sector | Change from May 2022 to May 2023 | Percent Change |
|---|---|---|
| Education and health services | 19,700 | 5.50% |
| Government | 8,400 | 3.50% |
| Leisure and hospitality | 7,300 | 3.10% |
| Construction | 4,800 | 3.20% |
| Professional and business services | 3,500 | 0.90% |
| Manufacturing | 3,300 | 2.30% |
| Mining and logging | 300 | 10.00% |
| Financial activities | -1,000 | -0.50% |
| Information | -1,900 | -4.30% |
| Trade, transportation, and utilities | -3,300 | -0.70% |
| Other services | -3,600 | -4.90% |
Despite a robust absorption in the first half of 2023, the Phoenix apartment market grapples with significant supply challenges. With roughly 52,500 units under construction at the end of Q2 2023, and a record 30,300 units slated for delivery over the next four quarters, the market is witnessing unparalleled expansion. However, Phoenix’s profile aligns with many recent outperforming markets, characterized by affordability, massive in-migration, business diversification, and a thriving single-family market. Although the surge in supply poses a temporary concern, the long-term prospects remain positive. The unique blend of factors that propelled Phoenix’s growth is likely to align its performance closer to national norms by early 2025, once the current wave of supply moderates. This transition symbolizes a maturing market that continues to offer opportunities but in a more stabilized environment.
