Q3 2022 Multifamily Real Estate Report: Phoenix, AZ
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The Phoenix multifamily market saw an incredible climb in performance, with vacancy rates bottoming out and rent increases skyrocketing. Yet, multifamily growth has started to settle down recently.
Despite recent market developments, the Phoenix region’s supply and demand balance remains steadily on par with its longstanding history.
In the last year, vacancies have increased, and over the last three months alone, there has been a 40 basis-point increase in vacancies.
Q2 of 2022 saw a highly encouraging labor market, with over 30,000 new positions being created, keeping unemployment at an impressively low 2.8% (the national average is 3.6%) for the quarter.
Projections indicating employment will grow by over 4% before year’s end further confirm this sustained economic positivity.
General Area Overview & Demographics
Phoenix is the largest city in Arizona and one of the most populous cities in the United States. Phoenix has a population of 1,680,992, according to the 2019 U.S. Census Bureau estimate. Phoenix is known for its diverse population and has a large community of people from various ethnic backgrounds and cultures.
The Phoenix metropolitan area is made up of 39 cities, towns, villages, and unincorporated areas. Phoenix spans over 470 square miles with an average population density of 3,334 people per square mile. The city has multiple higher education institutions, such as Arizona State University and Grand Canyon University.
Phoenix also boasts a myriad of attractions, such as the Desert Botanical Garden located in Papago Park. It also provides numerous golf courses located around town for avid golfers, as well as exciting nightlife venues in downtown Phoenix.
Phoenix, Arizona, has a hot desert climate with hot summers and mild winters. Average temperatures in Phoenix range from the mid-50s in winter to around 115 degrees Fahrenheit during the hottest summer months. Phoenix is situated in the Sonoran Desert, which receives very little rainfall per year and experiences low humidity levels throughout much of the year.
Summary of Phoenix Multifamily Real Estate Performance in Q3 2022
Rents declined for the first time in over 10 years following successive surges. Low vacancy and high absorption were leveraged to increase rents prior, but during Q3, there were indications that the busiest submarkets in the region had reached peak rent levels.
Despite an upward trend in the first half of this year, sales velocity dropped from Q2 to Q3 by approximately 40%. Accounting for nearly half of all transactions in the first two quarters, Class C properties saw a noticeable drop-off to 35% by Q3.
Vacancy reached 5.7% for the multifamily real estate Phoenix market. Year over year, the rate has increased by about 180 basis points.
What are multifamily rents like in Phoenix?
Rents went up by over 20% for more than a year but have now stabilized at sustainable levels.
After a 5% increase throughout most of the year, average rents experienced a slight 0.5% dip in the last quarter, now standing at a price of about $1,650 per month, somewhat more affordable than other areas of the country.
However, Phoenix multifamily submarkets north of downtown have seen continued average rent increase of 15% year-over-year.
Purchase & Leasing Activity
Following a strong start to the year, sales activity cooled in recent months as buyers and sellers adapted to fresh lending requirements. Transaction activity slumped significantly over the last quarter, resulting in a 14% decrease.
Despite a slight decrease in pricing, third-quarter levels remain significantly higher than in past years. The median price per unit this quarter was over $270,000
Notable Multifamily Real Estate Deals in Phoenix in Q3 2022
Several notable deals for Phoenix multifamily properties took place this quarter:
- The Residences of Central Phoenix sold at $63,000,000;
- Sonoma Valley sold at $44,500,000;
- Skywater at Town Lake sold at $160,000,000; and
- Tempe Metro sold at $134,000,000.
These provide select examples, among other deals, for multifamily real estate in Phoenix.
New Multifamily Real Estate Development Activity in Phoenix in Q3 2022
Developers for Phoenix multifamily properties have been busy this year, delivering over 4,000 rental units during Q3. Over 9,000 residential spaces have been completed this year so far. These figures outpace last year’s activity, with 31,000 apartments currently under construction, a 25% increase compared to 2021.
Phoenix, Arizona, saw a surge in multifamily permitting activity over the third quarter of 2022, with developers pulling permits for about 12,000 units year-to-date. This marks an 18% increase compared to last year.
Market Forecast for Phoenix’s Multifamily Real Estate Market
Phoenix is projected to be a bustling multifamily market throughout the remainder of 2022 and beyond. The city’s multifamily future looks bright until going into 2023.
With robust local employment continuing to be the driver of growth, renters have shown no signs of wavering in their demand for apartments. This trend has been gaining momentum over recent months and shows great potential going forward.
Multifamily development appears to be gaining momentum as construction activity and permit applications continue to increase. With this in mind, we can expect industry growth will sustain for the foreseeable future.
After experiencing a period of growth, the housing market slowed in Q3 as buyers and sellers adapted to changes in financing. Before this quarter, renters were still entering the market, which kept rent costs on an upward trend and combating increased rates.
If demand continues and absorption continues to escalate at its current pace, we could see further increased rental prices down the line.
Takeaways for Multifamily Real Estate Investors
Though multifamily real estate in Phoenix settled a little this quarter, the market is forecasted to continue to show signs of health and growth due to the city’s overall economic and population growth.
This slight slowdown could provide a great opportunity for interested investors to get in at a favorable time.
Despite these positive indicators, research and due diligence should always be exercised before making any investment.
Find Commercial Real Estate in Phoenix, AZ With the Help of a Local Agent or Broker
MyEListing.com maintains one of the country’s largest national directories of commercial real estate agents and brokers. Use it for free to find CRE agents and brokers in Phoenix, AZ.
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