By Jesse Fisher
Arizona’s rental market continues to stand at the crossroads of shifting economic conditions, robust demand, and cooling post-pandemic trends. Over the past week, a series of reports and analyses have given both tenants and investors new insights into how the rental landscape is evolving across the Grand Canyon State. These recent findings are particularly relevant to current and prospective real estate investors who are weighing the risks and opportunities in Arizona’s dynamic property market.
According to new data released by Apartment List in their June 2024 report, average rent prices across major Arizona cities have either stabilized or experienced slight declines in the past month. Phoenix, the state’s largest rental market, saw median rents drop by 0.3 percent in May compared to April. This small dip follows a trend that emerged earlier in the spring, suggesting that the breakneck rental growth of 2021 and 2022 has indeed settled. The Phoenix metro area’s year-over-year rent growth now sits at just 1.1 percent, which aligns with the national average. Scottsdale and Tempe have mirrored this trend, with monthly rents remaining mostly flat since April and year-over-year increases hovering below two percent.
In Tucson, another key Arizona rental market, the trends are similar. The June update from Zillow shows a negligible decrease in average rent from last month. The annual growth rate for Tucson rentals is now below one percent. These patterns suggest that while demand remains high relative to the pre-pandemic era, renters are no longer feeling the same degree of price pressure that defined 2022.
One factor that has contributed to this stabilization is Arizona’s rising vacancy rates. Recent data published by the Arizona Multihousing Association highlights that vacancy rates across the Phoenix metro area have edged up to nearly 9 percent, marking the highest level seen since early 2019. Tucson’s current vacancy rate stands at just under 8 percent. These increases are not isolated incidents. Over the past 12 months, construction activity has led to the delivery of thousands of new rental units, especially in popular employment and lifestyle hubs near Tempe, Chandler, and Scottsdale. This influx of new supply has given renters more choices and landlords less leverage to raise prices.
Despite the increase in vacancies, underlying rental demand remains strong. Population growth, fueled by migration from California and other high-cost states, continues to bolster Arizona’s long-term rental fundamentals. According to the U.S. Census Bureau, Maricopa County added over 55,000 new residents in 2023, the largest numeric gain of any county in the nation. Many of these newcomers seek rentals first, especially as high mortgage rates have kept homeownership out of reach for many households. The rental application processing firm RentCafe noted in a recent release that Arizona’s application volume in May stood 12 percent higher than the same period last year.
Arizona State University’s real estate advisory panel explored these intersecting trends in a webinar earlier this week. Panelists described a market that is “normalizing” after several years of volatility. Investors are taking a closer look at fundamentals, focusing on market segments and neighborhoods less exposed to oversupply. “It is still a landlord’s market, but smart investors are screening tenants carefully and offering move-in incentives in submarkets with higher competition,” observed one of the senior analysts.
For real estate investors, these updates signal a nuanced period for making decisions. The days of double-digit annual rent hikes are likely over in the short term. Instead, owners can expect more modest, steady growth through 2024. The state’s increasing vacancy rates mean that cash flow projections should be set conservatively, accounting for longer lease-up times and potential concessions.
Nevertheless, investment opportunities remain, especially for those with a long-term horizon. Arizona cities continue to attract young professionals and retirees, keeping demand generally buoyant. Value-add strategies, such as upgrading older single-family homes or small multifamily assets, can still yield above-average returns in today’s market. High interest rates and subdued homebuying activity expand the renter pool, particularly among newly relocated residents and young families.
Some investors are paying close attention to build-to-rent projects that have proliferated in recent years, particularly in the Phoenix and Tucson suburbs. These communities, which offer single-family homes for rent rather than for sale, cater to tenants looking for more space and amenities without committing to a mortgage. A newly published study by Colliers International found that build-to-rent developments in Phoenix maintain occupancy rates above 93 percent, a figure that far surpasses conventional apartment buildings in certain neighborhoods. Monthly rental rates for these properties have held steady, highlighting a niche within the broader rental market where demand remains elevated.
Affordable housing remains an area of concern, with rents still consuming a significant percentage of income for many Arizona residents, especially in urban centers. Advocacy groups have pointed to the need for continued policy initiatives to expand affordable rental supply. Last week, the Arizona Housing Coalition called on municipal leaders to revise zoning regulations to enable more dense and varied housing types, which could appeal to both investors and residents.
Investors should also remain mindful of shifting tenant expectations. The Arizona renters surveyed by RentCafe listed energy-efficient appliances, in-unit laundry, and proximity to public transit as their most sought-after features. Pet-friendly units and flexible lease terms also received high marks. Product differentiation—making properties stand out through thoughtful upgrades and competitive amenities—remains key for minimizing vacancy and attracting stable tenants.
Looking ahead to the second half of 2024, the consensus among economists is that Arizona rental markets will remain stable, characterized by incremental growth and moderate vacancy rates. Any major swing in rental rates seems unlikely so long as mortgage rates remain elevated and construction pipelines slow down in response to higher capital costs. While market conditions no longer overwhelmingly favor landlords, disciplined investors can still achieve steady returns by focusing on fundamentals and adapting to local trends.
To sum up, Arizona’s recent rental market news points to an environment of stabilization, with slight cooling in rental rate growth and a gentle rise in vacancy rates. For real estate investors, the era of runaway growth has given way to more measured, sustainable opportunities. Careful attention to neighborhood trends, renter preferences, and new supply will be essential for those looking to capitalize on Arizona’s enduring appeal. While challenges like affordability and competition persist, the state’s demographic tailwinds continue to strengthen its position as a promising market for residential real estate investment.