The Phoenix apartment market continues to face challenges as an ongoing imbalance between supply and demand weighs on performance. Despite strong leasing activity totaling 17,000 units of net absorption in the past year and ranking Phoenix among the nation’s top 10 demand markets, a record wave of construction has pushed vacancies higher and rent growth into negative territory. Over the past 12 months, developers have delivered 24,000 new units, more than triple the pre-2020 average, driving overall vacancy to 12.2% with another 23,000 units still underway.
Most of the new development targets luxury communities, leaving the workforce housing segment somewhat shielded from the oversupply. Vacancy among 1- and 2-Star properties has risen modestly, with rents down 1.8% year over year, while high-end properties have seen sharper declines, with vacancy up more than 730 basis points from post-pandemic lows and rents falling 2.6%. Elevated construction activity, particularly in Downtown Phoenix, Tempe, and the Southwest Valley, is expected to keep vacancies above average in the near term despite steady renter demand.
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