For some multifamily developers, raising rents has been difficult due to the influx of supply that has entered to keep up with the demand. But in many markets, including Phoenix, construction has been starting to slow.
In fact, according to a first-quarter report from Northmarq, deliveries in Arizona's capital started to peak in the fourth quarter, as 3,288 units hit the market by the end of March. With net absorption at 3,750 units, that marked the first time in two years that the demand outpaced the supply entering the market, according to the CRE firm.
"The number of units that were added to inventory during the first quarter was down 33 percent compared to delivery totals from the same period in 2024," Northmarq said.
Recommended For You
Also, the slowdown had a positive effect on the vacancy rate, as it fell by 30 basis points from the previous three months and 10 basis points year-over-year to 7.1 percent. And while the decline was modest, it marked the first 12-month period improvement in four years.
Some submarkets where the category is seeing some relief include North Scottsdale, North Tempe and South Tempe.
Meanwhile, not every category performed well. For example, the average asking rent was mixed. From 12 months prior they declined two percent to $1,556 per month but increased 0.7 percent compared with the fourth quarter.
Most notably, multifamily property sales in Phoenix suffered the worst quarterly activity in more than five years. Total transactions declined by 50 percent year-over-year.
"The decline in activity was most pronounced among newer assets, while there was an increase in the sales of older Class B and Class C properties," said Northmarq.
"Per-unit prices dipped, but cap rates remained flat."
While multifamily supply appears to be trending in the right direction in Phoenix, Northmarq warned that there might be a little more pain for local landlords before things fully turn around. The firm expects construction to pick up in the "coming quarters," but "the pace of new development is expected to slow from 2026 to at least 2028, which should result in vacancy rates ultimately returning closer to 5%."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
