By Jesse Fisher
In the past week, several news outlets and industry sources have published updates that shed fresh light on the evolving rental market in Arizona. As the state continues to attract new residents due to its sunny climate, expanding job market, and relative affordability, the dynamics of rental supply and demand are drawing significant attention from real estate investors. National trends have started to influence local conditions, and data out this week reveal both opportunities and challenges for those considering new investments in Arizona’s multifamily and single-family rental sectors.
The most recent reports from Zumper and Apartment List both confirm that rental rates in Arizona continue to climb, though the pace is moderating compared to the pandemic boom years. Phoenix, in particular, has seen a jump of about 1.5 percent in average monthly rents year-over-year, but this is notably slower than the double-digit increases witnessed between 2020 and 2022. Median rent for a one-bedroom apartment in Phoenix is now around $1,400 per month as of June 2024. Tucson, Arizona’s second-largest city, also reported a modest uptick in rents, with the average one-bedroom now at $1,050, up approximately 0.7 percent from last year.
The latest data from the Arizona Multihousing Association, released in their early June statewide report, highlights that vacancy rates have increased slightly, now reaching 8.1 percent for Greater Phoenix. This represents a significant change from the ultra-tight market experienced two years ago, where vacancy rates hovered below 5 percent. The increase in vacancies is largely attributed to new apartment supply entering the market, particularly in suburban communities surrounding the Phoenix metro area. Over 15,000 new apartment units have been delivered in the last twelve months, pushing inventory to its highest level in nearly a decade.
Despite rising vacancy rates, tenant demand remains resilient, thanks largely to ongoing population growth and strong inbound migration from other states. The Greater Phoenix Economic Council recently cited that Arizona continues to add over 100,000 new residents annually, many of whom arrive from pricier markets like California and Washington. This sustained migration bolsters the rental market, particularly as interest rates linger above six percent, discouraging many would-be homebuyers from entering the ownership market.
This unique supply-demand balance presents both promise and caution for real estate investors. On the opportunity side, steady demand and a robust job market—especially in high-tech manufacturing, logistics, and health care—suggest a healthy pipeline of potential renters. Companies like Intel, Taiwan Semiconductor, and others are expanding their Arizona operations, bringing thousands of jobs and supporting disposable incomes suitable for market-rate apartments and higher-end rentals.
On the other hand, the rising vacancy rates and slowing rent growth raise some important considerations. Investors must now be more discerning when selecting assets, focusing on locations with lower exposure to new competition or on properties with a proven track record of tenant retention. Areas such as Tempe and Chandler continue to report stronger performance compared to outlying suburbs where the influx of new units is more intense.
A closer look at single-family rentals shows a similarly nuanced picture. According to a June survey from CoreLogic, single-family rental prices appreciated by about 3.4 percent statewide year-over-year. This represents continued growth, yet at a less aggressive pace than in 2021 and 2022, when double-digit percentage increases were the norm. These properties are seeing consistent demand from families reluctant to buy amid high mortgage rates and competitive home prices. Build-to-rent communities, especially in Phoenix’s West Valley and parts of Maricopa County, are now commanding higher premiums compared to their multifamily counterparts.
Market participants interviewed by The Arizona Republic this past week echoed these sentiments. Many suggest that deals still exist for well-capitalized investors, particularly those willing to invest additional resources to renovate and reposition older assets. Value-add strategies are becoming more attractive, as renters show a willingness to pay modestly higher rent for modernized interiors, resort-style amenities, and properties that offer security and proximity to schools or employment centers.
The recent uptick in vacancy rates also comes with its own set of challenges. Some landlords have begun offering enhanced concessions to attract new tenants, including one or two months’ free rent or discounted security deposits. This trend is most noticeable in recently built properties where lease-ups have proven slower than anticipated. For the investor, these concessions can temporarily hamper yields, but strong marketing and property management frequently help restore occupancy within a reasonable timeframe.
Another relevant aspect surfaced in the weekly report from the National Multifamily Housing Council, which found that Arizona renters are exhibiting a growing appetite for flexible lease terms and upgraded technology in their homes. Investors who neglect these shifting preferences risk higher turnover and lower renewal rates. Introducing smart home features, robust internet connectivity, and flexible short-term leasing can help attract and retain tenants in a more competitive landscape.
Legislative factors are also coming into play, with several Arizona municipalities exploring changes to rental registration and permitting. Some cities, including Scottsdale and Mesa, are studying proposals to regulate short-term rentals more tightly and enforce stricter codes on long-term rental safety and habitability standards. While none of these measures have yet had a major statewide impact, they represent evolving regulatory risks that investors should monitor closely.
While some experts had predicted sharper declines in rents by 2024, given the surge in new apartment supply, the Arizona market is proving to be more resilient than anticipated. The relatively high job growth, positive net migration, and limited new inventory in the ownership market all contribute to this stability. Investors who carefully underwrite acquisitions and maintain prudent expense controls remain well-positioned in most submarkets.
Looking ahead, analysts from Colliers International and CBRE expect that rent growth across Arizona will remain in the low single digits over the next twelve months. Vacancy rates may persist at current levels or tick slightly higher as more properties come online, but there is little evidence to suggest a widespread glut or collapse in rents. Rather, the market appears to be moving from a period of explosive growth to one of normalization, where experienced operators and well-chosen assets will outperform the average.
In summary, Arizona’s rental market continues to experience a period of transition after several years of rapid expansion. Rent growth is slowing but remains positive, vacancy rates are rising but not alarming, and demand fundamentals continue to underpin the broader market. For real estate investors, this means that careful asset selection, hands-on management, and proactive marketing will be critical for success as the market evolves through the remainder of 2024 and into 2025. The competitive landscape is changing, but Arizona’s broader demographic and economic trends ensure that rentals will remain an attractive asset class for disciplined investors.