Phoenix multifamily construction has climbed to a record high, but the supply-side risk is not worrying landlords or investors.
More than 21,000 multifamily units are under construction across the metropolitan area, and once completed, the new stock will expand the market’s inventory by 6.4%. That ranks Phoenix fourth among large U.S. markets for the share of inventory under construction behind Nashville, Tennessee; Charlotte, North Carolina; and Miami, Florida.
Despite the high share of inventory underway, Phoenix boasts the lowest vacancy rate among the top 10 markets for new construction. Vacancies are near a historic low at about 5%, and the rate is well below the national index of 6.1%. Strong demand for housing fueled by robust net migration and low single-family housing inventory has kept vacancies low.
More than a quarter of the construction in Phoenix is in downtown Phoenix. Developers are underway on more than 5,900 units in downtown, accounting for 17% of the submarket’s existing inventory. The submarket has one of the highest vacancy rates because of years of new supply and the movement of renters from dense and expensive neighborhoods to the more affordable suburbs during the onset of the pandemic.
Outside of downtown Phoenix, construction is concentrated in high-demand suburbs and in Tempe, near Arizona State University. Market wide, demand is expected to outpace new supply this year in CoStar’s Base Case Scenario. The imbalance will put further downward pressure on an already low vacancy rate, which will give landlords leverage to continue pushing rent growth in Phoenix.
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