Apartment demand in the third quarter approached a record-high in Phoenix, and rent growth is outstripping the national average. But early indicators suggest the strong performance may start to soften. Thousands of luxury apartments are underway, the state’s eviction moratorium has expired and rental demand fell in October.
The Phoenix market has maintained its place as one of the country’s top markets for rent growth, even during the pandemic. Daily asking rent trends in Phoenix mimicked the national movement early in the year. But more recently, national rents have descended again, and Phoenix rents have continued to climb. Not all areas of Phoenix are posting outsized rent growth. Suburban rents are about 5% above where they were in January, while urban rents have not yet recovered.
The pandemic did disrupt leasing, but it caused many renters to delay their moves rather than eliminate demand. While spring has typically been the strong leasing season, renters delayed their moves to July, August and September. Move-ins were pushed forward rather than erased, but absorption, or the difference between move-ins and move-outs, has started to moderate. October demand fell below the two-year average, and while one month is not a trend, we can anticipate more typical seasonality patterns in the coming quarters.
Despite healthy absorption, the inundation of new supply is expected to outpace demand for rentals this year. New supply is set to impact Phoenix’s submarkets differently. Before the pandemic, developers made progress on thousands of luxury units in downtown Phoenix, Tempe and Old Town Scottsdale. These are Phoenix’s dense, expensive and urban areas that renters are leaving for the suburbs. There is also a substantial amount of inventory underway in high-growth suburban submarkets such as Gilbert and West Valley and Deer Valley. These properties should achieve faster lease-ups than new builds in urban submarkets.
Investors have also targeted Phoenix’s suburbs, and transaction volume accelerated in recent months. Despite the uptick in investment, the pause in activity during the second quarter may likely result in this year’s sales total to fall below 2019’s high.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.
