Q1 2023 Multifamily Real Estate Report: Phoenix, AZ
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In recent years, Phoenix has experienced rapid population growth and urban development. The city's diverse neighborhoods offer a range of housing options, from modern downtown apartments to suburban communities.
Last year in 2022, the population of Phoenix grew by nearly 73,000 residents.
In Q1 2023, Phoenix's multifamily real state market saw vacancies hold relatively stable, rents increase, and positive absorption.
General Area Overview & Demographics
Phoenix, Arizona, known as the Valley of the Sun, is a vibrant and rapidly growing city in the southwestern United States. With its rich history, breathtaking landscapes, and diverse cultural scene, Phoenix offers a unique blend of urban development and natural beauty.
The Economy, Climate, & Culture of Phoenix, AZ
One of the defining features of Phoenix is its exceptional weather. With more than 300 sunny days a year, the city enjoys a warm and arid climate, making it a popular destination for outdoor activities. The surrounding Sonoran Desert provides a stunning backdrop, with its iconic saguaro cacti and picturesque mountains.
As the fifth-largest city in the United States, Phoenix has a thriving economy that encompasses various industries, including technology, healthcare, finance, and manufacturing.
The city's entrepreneurial spirit has attracted numerous startups and established companies, contributing to its reputation as a hub for innovation and business growth.
Phoenix is also renowned for its cultural and artistic offerings. The city boasts a vibrant arts scene, with numerous galleries, theaters, and museums.
The Phoenix Art Museum showcases a diverse collection of art from around the world, while the Heard Museum celebrates the rich heritage and artistic traditions of Native American cultures.
Sports enthusiasts can immerse themselves in the excitement of professional sports, as Phoenix is home to several major sports teams, including the Arizona Cardinals (NFL), the Phoenix Suns (NBA), and the Arizona Diamondbacks (MLB).
The city's avid sports culture is further enhanced by the annual Waste Management Phoenix Open, one of the largest and most popular golf tournaments on the PGA Tour.
The nearby Camelback Mountain and South Mountain Park provide excellent hiking and biking trails, offering breathtaking views of the city and the surrounding desert. For those seeking water-based activities, the Salt River and nearby lakes offer opportunities for boating, fishing, and water sports.
Summary of Phoenix Multifamily Real Estate Performance in Q1 2023
Overall vacancies for Phoenix multifamily real estate landed at 8.6% by the end of Q1 2023, a slight increase from Q4 2022's 8.5%.
While vacancies held relatively steady quarter-over-quarter, Q1 2023's figure is a more significant increase when compared year-over-year to Q1 2022's 6% rate.
However, most of these vacancies are due to 2022's record year of new construction, delivering 14,000 new multifamily units to market.
Multifamily absorption remained positive in Phoenix in Q1 2023 as well, with 2,900 units absorbed: Phoenix's multifamily market has enjoyed over a decade of positive absorption.
Mesa/Gilbert, Northeast Valley, and Tempe were the only submarkets to post negative absorption for the quarter.
What Are Multifamily Rents Like in Phoenix?
After declining from $1,545 in Q1 2022 down to $1,523 in Q4 2022, Phoenix multifamily real estate rents increased to $1,526 per month in Q1 2023.
Average rents were as follows for unit size:
- Studio: $1,187 per month;
- 1 Bedroom: $1,393 per month;
- 2 Bedroom: $1,634 per month; and
- 3 Bedroom: $2,083 per month.
Scottsdale recorded the highest average rents across all submarkets for Phoenix's multifamily real estate at $2,046 per month, the only submarket to go over $2,000.
The lowest was West Phoenix at $1,379.
Purchase Activity
The average price per unit for Phoenix multifamily real estate declined quarter-over-quarter from $270,000 to $240,000. This was likely a result of rising cap rates between 2022 (5%) and 2023 (5.4%).
Overall, sales volume reached over $600 million in Q1 2023, with over $400 million in March 2023 alone.
The largest transaction that took place was for Phoenix's Sweetwater at Metro North. Priderock Capital Partners purchased this Class A property from TruAmerica Multifamily for $115 million, totaling 520 units for approximately $221,000 per unit.
Notable Multifamily Real Estate Deals in Phoenix in Q1 2023
There were several notable deals that took place for Phoenix's multifamily real estate market in Q1 2023:
- Alliance Residential Company purchased Tempe Station for $110 million.
- Knightvest Management purchased Aventura for $102.5 million.
- Hamilton Zanze & Company purchased Ironwood at Happy Valley for $90.28 million.
These are select examples among other activity.
New Multifamily Real Estate Development Activity in Phoenix in Q1 2023
During Q1 2023, developers completed 2,500 new multifamily units and received permits for another 3,500.
There were nearly 37,000 new multifamily units under constriction in Phoenix by the end of Q1 2023.
Central Phoenix and the Chandler/Queen Creek submarkets each account for 5,000 units under construction. Ahwatukee and East Phoenix were the only submarkets accounting for less than 1,000 each.
Market Forecast for Phoenix's Multifamily Real Estate Market
The Greater Phoenix multifamily real estate market expects significant new supply growth in 2023, with 16,000 new units scheduled for construction. Renter demand is strong, driven by local job market improvements and migration.
Existing property owners should maintain rent levels, while vacancy rates may return to the region's average.
Investment market sales may be slow, but improved property performance could exceed expectations behind a robust local job market.
Takeaways for Multifamily Real Estate Investors
Phoenix's strong market fundamentals will likely keep it a higher performer for multifamily real estate in 2023.
Do your research, stay diligent, and happy investing.
Methodology
This report was written with property information from the MyEListing.com platform in corroboration with other freely available commercial real estate research data.
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