RESEARCH
Provided by CoStar
PHOENIX APARTMENT OVERVIEW
The Phoenix apartment market had a strong start to the year with net absorption reaching a record high in 26Q1. The upswing in demand was met by an easing construction pipeline, causing vacancy and rent growth to improve. While encouraging, the multidecade high wave of supply over the past few years continues to weigh on operations, and a gradual recovery could be in store.
The Valley recorded 22,000 units of net absorption over the past 12 months, outpacing the pre-COVID five-year annual average of 7,200 units. That figure ranks Phoenix among the nation's top five markets for demand formation. Relative affordability and employment opportunity continue to draw residents to Phoenix, keeping the area as one of the fastest-growing markets in the country and supporting underlying renter demand.
Builders completed 20,000 net new units during the same period, the first time with supply and demand in balance since 2021. As a result, overall vacancy, which includes newly built properties in lease-up and stabilized communities, has improved to 11.2% today. While the 18,000 units under construction are down 50% from the peak a few years ago, it still represents 4.0% of existing inventory. That share ranks Phoenix as one of the nation's most aggressively built apartment markets
What is the current vacancy rate for multifamily units in Phoenix?
Aggregate market-wide demand remains robust in the Phoenix apartment market, with quarterly net absorption hitting the highest level on record in 26Q1. The strong start to the year brings net absorption to 22,000 units over the past 12 months, well outpacing the prepandemic five-year annual average of about 7,200 units. That figure ranks the Valley as a top-five demand market nationally, on both an absolute basis and as a percentage of inventory.
Strong population inflows, the high barrier to homeownership, and wage growth outstripping rent growth are supportive of renter demand. Additionally, the surge in construction over the past few years has freed up capacity for new renter households to form. Annual net absorption reached 17,000 units at 4 & 5 Star communities, the quality segment where the bulk of recent deliveries have occurred.
The opening three months of the year marked the first time quarterly net absorption outpaced quarterly deliveries since early 2021. As a result, overall vacancy improved from 12.5% a year ago to 11.2% today as accelerating demand met an easing completion schedule.
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Phoenix Multi-Family Construction
Supply-side challenges remain the primary headwind for the Phoenix multifamily market as a wave of deliveries overshadows sustained rental demand. Apartment builders delivered 20,000 net new units in the 12 months ending in 26Q1, outpacing the pre-COVID five-year annual average of about 7,100 units per year. The surge in construction activity has caused vacancies to rise quickly since mid-2021 and kept rent growth firmly in negative territory. About 18,000 units are under construction, representing 4.0% of existing inventory. While that is still one of the largest construction pipelines in the country, the total number of units underway has fallen for over two years and is down more than 50% from the peak in mid-2023.
Downtown Phoenix has received considerable attention from developers, keeping near-term supply-side risk elevated here. Six Class A hi-rise apartment towers were built within a half mile of each other since the start of 2025, each with more than 300 units. The luxury communities are located in the Roosevelt Row Art District, a trendy neighborhood popular with young adults and apartment builders. Further projects are under construction and proposed in the area, most of which are luxury properties targeting the top of the renter pool.
The Valley's fast-growing west-side suburbs have also been a target. Builders have added more than 24,000 units to the North West Valley and South West Valley submarkets since the pandemic's onset. The influx of supply has intensified competition, and local property managers report that asset performance has been particularly sluggish here. Build-to-rent (BTR) developers have been especially active. About 30% of deliveries in the West Valley since 2020 have been BTR, lagging only garden-style communities, which comprise about a third.
More insulated areas include East Valley submarkets like Chandler, where higher land costs and a lengthier entitlement process have kept construction more muted. Submarkets with limited available land, like Old Town Scottsdale and the Camelback Corridor, have also seen less activity.
Construction starts have eased from the record levels seen in 2022 and 2023, which should help alleviate the pressure from additional deliveries this year and next. Publicly available permit issuance data has seen a steep pullback over the past 24 months, as weaker property performance, higher construction costs, and limited equity availability present barriers to groundbreak.
However, optimism about the Valley's long-term prospects as a multifamily market could encourage developers to start projects now, aiming to deliver in 2028 or 2029, when supply is expected to be meaningfully lower, and the recovery in operations is in full swing. As a result, the pipeline could expand in the outer years of the forecast period, particularly if a return to positive rent growth materializes early, providing capital providers with greater conviction to move forward.
Phoenix Recent Sales Transactions
Phoenix multifamily sales activity continues to accelerate, climbing 24% year-over-year to about $4.7 billion in the 12-month period ending in 26Q1. Deal flow has steadily risen for over two years and is now up more than 35% from the post-pandemic low, though it trails the 2015-19 annual average by about 15%.
Increased sales momentum came alongside a more favorable lending climate. Financing remains readily available, mortgage spreads have narrowed, and interest rates have generally been stable and trended lower, though geopolitical conflict has introduced recent volatility.
Additionally, the construction pipeline continues to thin, and market participants report that investors remain attracted to the Valley's long-term value proposition and rent growth prospects once the supply wave is digested.
While newly built assets dominated deal flow in 2023 and 2024, investment is picking up for older vintage assets. The share of total sales volume for apartments built since 2020 has eased from about 50% to under 30% annually in 26Q1.
Phoenix Apartment Rents
Elevated vacancy and sustained supply-side pressure continue to weigh on Phoenix rent growth. Over the past 12 months, the average asking rent fell 1.8%, ranking the Valley as a bottom-five market nationally.
For comparison, Phoenix multifamily properties averaged 5% annual rent growth in the five years leading up to the onset of the pandemic. Below-trend performance is expected to continue throughout 2026 and into early 2027 as the market digests the wave of new supply that delivered over the past five years.
While rent growth has been negative since 2023, performance has held up through the early part of this year. April marked the fourth consecutive month of flat or positive monthly rent growth, with the current year-over year figure a reflection of especially steep declines in the second half of 2025.
While year-to-date rent growth has been tepid by historical standards at just 0.4%, 2026 is outperforming last year, which had already slipped into negative territory by April 2025. The comparative improvement came on the heels of an upswing in net absorption in 26Q1, which led to a plateau in vacancy. Early signs of a shift in rent growth momentum are also appearing by quality segment.
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