Chicago Multifamily Market Report – June 2023
June 7, 2023
- Category: Phoenix
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During and immediately after the COVID-19 pandemic, the Phoenix apartment market was one of the best performing metro areas in the nation. However, as migration has slowed, relative prices have soared, and new development has boomed, the multifamily market in the desert has quickly soured. Intermediate to long term demand drivers will remain especially migration. In fact, recent data from the U.S. Census Bureau showed that Maricopa County was the fastest growing county in the nation for domestic migration between July 1, 2021 and June 30, 2022. Yet the short-term challenges to property performance and rent growth will be immense in the coming years.
Traffic and Leasing Have Slowed After Record Pace
According to Radix, net effective rents are down across the Valley, as new supply has softened demand for existing stabilized deals. On a year-over-year basis, only the Sunnyslope submarket has posted rent growth. All other markets have seen net effective rents fall by 1 percent or more.
Through the spring leasing season, some submarkets are showing signs of growth. Paradise Valley, Deer Valley, and South Mesa all registered 30 basis points of NER growth last week. However rents in each of these submarkets are at least $100 below the metro average and have experienced significant rent declines in the past year.
The most expensive rents remain in the South and North Scottsdale submarkets where average net effective rent is more than $1,900.
As new supply has hindered rent growth, it has also led to increased concessions across the market. Concessions are up in every submarket compared to this time last year, with concessions in the hot Central Phoenix South and South Scottsdale Submarkets averaging more than double the metro average. Concessions will likely remain, as new supply is absorbed.
The development pipeline in Phoenix can be viewed through multiple lenses. There are 95 projects currently under construction in the metro, according to data from BuildCentral. Coupled with the significant new supply that has been delivered in the past 2 years, there is a lot of lease up inventory for existing properties to compete with.
However, the existing construction pipeline represents only 20 percent of the entire development pipeline, as there are currently 351 projects in various planning stages across the Valley. Some of these projects will be canceled, as interest rates and softening fundamentals will make it difficult for developers to build, but even if a fraction of the deals in the planning stages get built, Phoenix is looking at long term supply pressures that will have negative impacts on property operations.
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