Metro Phoenix Apartment Owner’s Update – 1st Quarter 2025

We track quarterly market data on apartment sales, apartments “For Sale”, occupancy, rental rates and new apt. construction. To provide the best brokerage service to clients, this is just part of the information needed! Considering Selling, Buying or just need info on our market – give us a call. Experienced – Dedicated – Track Record

New Apartment Completions Set Record
BUT – Q1 Start-ups Reduced!

In 2024 there were a record-setting 23,993 apartment units completed.  With 45,756 units still Under Construction, the continuing increased supply will further negatively impact occupancy, rental rates and overall cash flow for a year or two.  Of significance is that most of the projects are located in the west Valley – and thus less of an impact on central, Metro Phoenix.  Good News: with only 17,026 units Planned, the completions should then drop off, creating a supply shortage and a return to increased rent, occupancy and apartment value.  This is supported by only 2,251 units being started in Q1 2025.  The impact of the 92,110 Prospective units TBD. 

There are also 10,288 single family home projects currently being “built to rent” and 20,640 total in the pipeline.  These BTR homes compete for tenants and add pressure on apartment occupancy, rental rates, move-in incentives and overall cash flow. 

Occupancy and Rents Continue Decline

Yardi Matrix reports apartment vacancy at 7.9% (see table). I’ve always depended on Yardi for accurate trends more than exact numbers. As long as the data is consistent – this works.  There are also various ways vacancies are reported.  For example, what if a unit is rented, but the lease starts in a week.  Rented or vacant?  CoStar reports all MF units with a 11.7% vacancy.  Other agencies report even higher.  Regardless, vacancy rates continue to increase for all size and age properties. 

Rents continue to drop with a decrease over the past 12 months of 1.8% for the mid-range apartments and 2.8% for workforce.  Yardi reports an avg of 2.0% and CoStar reports 2.1% for all property types.  Of more significance is that since Q2 2022, workforce and low mid-range apts have had a +$500 increase in concessions, but the upper mid-range and discretionary units have had an increase of +$1,500.  Offering two-months free rent for new tenants is common, especially for properties in lease-up.  Sales volume – The high mortgage rates combined with less cash flow from the impact of the new apartment construction continues to minimize transactions.  Here’s the numbers for the past five years: 2020-264, 2021-411, 2022-290,  2023-102, 2024-86, Q1 2025-10 (20+ units – per CoStar).

DOWNLOAD – 2025 Q1 Metro Phoenix Apartment Owners Newsletter With Sales

Year	Units Constructed	Vacancy
2017	6,543	5.4%
2018	8,162	5.0%
2019	9,008	5.1%
2020	8,817	4.5%
2021	9,892	4.2%
2022	16,016	5.9%
2023	17,092	6.8%
2024	23,993	7.0%
2025 – Q1	4,238	7.9%

2024 Metro Phoenix Apartment Market – Ugh
BUT – Projected to be Great by 2026

In 2024, high interest rates and the record-setting new apartment completions were the driving forces impacting our market.  Over the past year, multifamily lending rates typically ranged from 6.5% to more than 7.0%, much higher than the sub 4% we had prior to mid-2022.  The reduced cash flow from the impact of the increased new apartment supply also lowered property values.  The result being only 86 property transactions were completed with 20 units or more in 2024 (CoStar). 

Nationwide, the high lending rates continue to cause cash flow issues for owners with loans that have adjusted to market rates. The CMBS delinquency rate for all property types has increased from 4.57% to 6.54% over the past 12 months and multifamily increased from 1.84% to 5.44% (Trepp, March 2025). Another growing concern is the increasing insurance premiums that are being driven by massive natural disasters nationwide.  Arizona leads the US with 62.1% surge in home insurance rates over 5 years (Lending Tree).  Chris Plitt, a local insurance broker, suggested we may see a 10% to 15% bump in rates next year, and up to 30% for pre-1990 apartments (CDPlitt@EIAAZ.com). As we continue to note, distressed assets provide a buying opportunity.  Let us know if you are a buyer.  Having gone thru a similar scenario in 2008 – 2010, we also have a strong track record in helping owners get thru tough times by working with their lenders.  Let us know how we can help.

That said, we see a VERY strong increase in our market within 1 to 2 years.  The current pipeline of new construction will be completed and absorbed and the number of “Planned” new apartments is minimal.  This will create a significant supply shortage that will drive rents and property values up.  Additional positives include Metro Phoenix being business friendly, having a very diversified and strong economic base led by Real Estate, Financial Services, Manufacturing and Technology with an existing overall job growth of 2.2%.  Existing JOBS have already created strong population growth with Metro Phoenix population up 85,000 last year (Axios), now with a total population of more than 5 million.  Thanks to California, with their challenging business laws, environmental issues plus our more affordable housing, about 65,000 folks moved to Arizona last year. 

Immediate issues.  Today there are considerable local and world concerns including the impact of tariffs, the staggering number of illegal immigrants, the war between Russia and Ukraine, the threat of confrontation with China (re: Taiwan and hacking our infrastructure) and the nuclear threat in the middle east.  Most everyone agrees that we are at a turning point for the US and the world.  The fact that gold is now above $3,300/ounce – verifies this concern. 

PRIMED for HUGE GROWTH. No one knows exactly how the US and world issues will impact the overall economy – BUT, we do know that the “massive”, recently announced investments will provide a dramatic increase in JOBS, population growth and demand for housing.  Intel has already invested $34 Billion and will add another $20 Billion in their Chandler facilities.  TSMC has increased their microchip commitment in north Phoenix to $165 Billion.  This, plus Trumps new policies, have sparked 362 manufacturing companies seeking to expand and or relocate here (GPEC). A portion of Apple’s $165 Billion investment in the US is ear-marked for Phoenix, Mayo Clinic has committed $1.9 Billion for their north Phoenix campus, and Mack RE group will invest $7 Billion in the area near the TSMC operation (Halo Vista).

Small Apt Division – Owners of smaller apartments deserve the same service as we provide to larger properties. Let us obtain the best buyer and highest price possible. Experience and market knowledge make a difference. Note that although there were only 18 properties sold with 24 units or more in Q4, there were 58 properties sold with 4 to 15 units.