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Phoenix Multifamily Market Report – October 2023

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Phoenix Multifamily Market Report – October 2023

Picture of Chris Nebenzahl

Chris Nebenzahl

Multifamily Metrics Mixed in the Desert

Phoenix has seen a rapid slowdown over the past year, as apartment performance declined amid high supply. However, as we near the end of 2023, leading indicators are beginning to show signs of strength for Phoenix multifamily. Lagging indicators remain negative, and will likely continue contracting through the winter months, yet the recent uptick in traffic and leasing bodes well for the intermediate term in the Valley.

The Arizona capital remains a very attractive market for domestic and corporate migration. High end manufacturing in the Valley has emerged as one of the largest growth industries; companies like Taiwan Semiconductors and Intel are leading the way with multi-billion dollar investments in new and expanding microchip facilities. New apartment supply has been an issue and will still have an impact as lease-ups are taking longer than originally anticipated. With a robust planned pipeline, the future performance of Phoenix’s multifamily industry may rest in how many new developments break ground in the coming year.

Phoeniz AZ MSA Market Snapshot

Rent and Operating Trends

Rent growth and occupancy remain negative on an annual basis in the Valley, but traffic and leasing are both up from a year ago. Leading indicators are in line with national averages and if they have found a bottom, this is a good sign for future demand in Phoenix.

Traffic and Leasing
  • The average apartment community sees 7.1 tours per week in Phoenix, with the heaviest concentration in Maryvale, just west of Downtown. The submarket is averaging 9.2 tours per week as of mid-October more than double its average traffic from a year ago.
  • Goodyear/Avondale and Deer Valley are also doing well from a traffic perspective, with each submarket averaging more than 8 tours per property per week.
  • Deer Valley has the strongest leasing in the Valley, with properties signing 3.6 new leases per week. As one of the submarkets with the highest apartment traffic, Deer Valley maintains an impressive conversion ratio of 44%.
  • The Sunnyslope submarket has the lowest traffic in the metro, averaging just 4.3 tours per week. South Mesa is another struggling submarket, with only 5.1 tours per week, and 1.1 leases signed per week. This is particularly difficult news for owners and operators in South Mesa, as it has been one of the busiest submarkets for new supply in recent years.
Traffic and New Leases Signed Phoenix, AZ
Source: Radix

Occupancy and ATR

  • Market occupancy in Phoenix is 93.49%, among the lowest in the nation, however, its yearly decline is only 35 basis points. With traffic and leasing picking up modestly, there is some room for optimism in Phoenix, though it will take several years to get back to its historic occupancy levels.
  • Despite significant new supply in the submarket, North Tempe has the highest occupancy rate in the metro at 95.08%. It is also one of the few submarkets where occupancy has increased over the past year.
  • East Mesa and the various Scottsdale submarkets are also holding their own, with average occupancy rates above 94%.
  • One indication that demand remains strong is that ATR is below the national average. Phoenix properties have an average of 12 units available to rent over the next 60 days.
Occupancy Rate Phoenix, AZ
Source: Radix

Net Effective Rent and Concessions

  • Net effective rent is down 4.4% across the Valley over the past year. After a historic run up in rents in 2021 and 2022, it was natural to expect rents to slow. However, Phoenix still ranks among the weakest markets in the nation for rent growth.
  • East Mesa trails all submarkets with 8.8% rent declines in the past year. Maryvale and Glendale South are not far behind, as rents have fallen 8.6% and 8.2% respectively.
  • All submarkets have experienced rent declines in the past 12 months, and West Mesa is the best performing market in the Valley, with rents falling only 1.3%.
  • Not surprisingly, concessions have increased substantially across the metro. In the past year, concessions in Phoenix are up 192% compared to a 56% increase nationwide.
  • Central Phoenix South leads the market with the highest average monthly concession, as the submarket has been the epicenter of the supply boom.
NER and YOY NER Phoenix, AZ
Source: Radix

Employment Trends 

  • While Phoenix remains one of the fastest growing migration hubs, employment growth has slowed somewhat over the past few months.
  • Job growth is steady, and only once in the past year have we seen a decline in monthly employment, yet the unemployment rate has increased to 4%, slightly above the national average. I expect unemployment will fall in the coming months, as the market maintains its strength and corporations continue to add to their headcount.
  • Large investments in high-end manufacturing in the northern and southeastern suburbs will drive employment in these submarkets for an extended period of time.
New Job Formations Phoenix, AZ
Source: Bureau of Labor Statistics
Unemployment Rate Phoenix, AZ
Source: Bureau of Labor Statistics

New Supply Pipeline

  • Phoenix has been a posterchild for new supply over the past few years as rapid increases in demand led developers to fill the pipeline.
  • A lot of new product has been delivered in Downtown Phoenix, Tempe, and Mesa. Earlier in the development cycle, Scottsdale dominated the new supply market, but developers have moved into newer submarkets with strong demand and less supply. The supply balance has quickly shifted however, and these submarkets are oversupplied with the current construction activity.
  • Glendale and Surprise also have a number of projects currently in the planning phases. The suburban submarkets may look like their urban counterparts if these projects come to fruition.
  • There are currently fewer than 150 projects under construction across the metro, but the pipeline blows out to more than 600 projects when you include those in planning. With interest rates rising, cost of construction accelerating and apartment fundamentals slowing down, many of these projects will not be built. However, even if a small portion deliver, it will add additional supply pressure to newly stabilized and lease up deals. Submarkets to watch include Downtown Phoenix, Tempe, Mesa and Chandler.
  • Finally, it is impossible to overlook the environmental and subsequent cost constraints in the Valley. There is long term concern for the access to water and the potential for construction costs to balloon as a result. While many costs are rising across the nation, water availability in construction is unique to Phoenix and only a handful of other markets. This challenge will manifest itself over a longer time period, but should be considered with all new projects in the Valley.
Construction Pipeline Phoenix, AZ
Source: BuildCentral

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Picture of Chris Nebenzahl
Chris Nebenzahl
Chris Nebenzahl is the Director of Economic Research at Radix, where he oversees all macroeconomic and multifamily market analysis. Chris has 15 years of multifamily experience in data analytics, research, asset management and acquisitions. Prior to his time in the multifamily industry Chris was a portfolio manager at Bank of New York, focusing in the government and commercial fixed income sectors.
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