Jesse Fisher
In recent weeks, a growing number of real estate investors and market watchers have turned their attention to new data emerging from Arizona’s rental market. The backdrop, shaped by economic shifts and migration trends, is creating fresh considerations for anyone involved in real estate investing across the state.
According to the latest reports from RentCafe and Zillow, rental rates in Arizona have seen a slight year-over-year increase. While the red-hot surges of 2021 and early 2022 have cooled, rents are still trending upward, albeit at a slower pace. In Phoenix, the median rent for a one-bedroom apartment reached $1,367 in June 2024. This represents a modest annual increase of 2.3 percent. For two-bedroom apartments, the median rent is about $1,545, reflecting a similar pace of growth. These measured gains demonstrate how the market is shifting from the fevered competition driven by pandemic-era migration toward a more sustainable trajectory.
Analysts note that the Phoenix metro area, including surrounding cities like Tempe, Mesa, and Chandler, is seeing a flattening in rent escalation. This is partly due to a wave of new multifamily construction that is finally coming online after several years of supply-chain delays. According to data from CoStar and Colliers, over 14,000 new apartment units are expected to be delivered across Greater Phoenix by the end of 2024. The impact is already being felt as vacancy rates have ticked up to nearly 8 percent this spring, with localized spikes in submarkets that have experienced especially rapid development.
However, the situation remains nuanced. In Tucson, rents have remained more affordable, with a median rate of $1,150 for a one-bedroom unit. However, vacancy rates there have remained below 6 percent, making the city attractive for investors seeking stable occupancy and relatively lower acquisition costs.
The adjustment in vacancy rates across Arizona shows how the state is transitioning from a landlord-driven market to something closer to equilibrium. The second quarter of 2024 brought news from the Arizona Multihousing Association that more units are sitting empty in some popular urban corridors. The Valley’s rental vacancy rate, which hovered around 5 percent as recently as 2022, has climbed as both investors and developers have targeted the state’s strong demand for rentals. Though rising vacancies might seem like a warning sign, investment strategists are quick to caution against alarm.
This trend may actually serve to attract more investors, especially those with an eye toward value-add opportunities. A moderate increase in vacancies gives tenants greater choice, and therefore puts some pressure on landlords to offer more competitive terms or invest in amenities. Savvy investors could see this as a chance to purchase units at a slight discount, then renovate or reposition properties to meet evolving renter expectations.
Demand for Arizona rentals remains robust, especially from younger families and professionals relocating from more expensive neighboring states. According to U.S. Census Bureau figures along with market research from CBRE, Arizona continues to be a top destination for domestic migration, with Maricopa County leading the nation in net population gain. Those moving to the state are still facing affordability barriers to homeownership, driving consistent demand for rentals. Furthermore, higher mortgage rates have pushed many would-be buyers to remain in the rental pool, sustaining occupancy even as new units come to market.
Rental market resilience is apparent in areas like Gilbert and Scottsdale, where inventory growth has been quickly absorbed by new arrivals and well-compensated tech workers. Recent news coverage from the Arizona Republic detailed how these urban clusters are benefiting from corporate expansions, remote workers, and the continuing trend of retirees seeking warmer climates. Analysts suggest that well-located properties close to employment centers, schools, and amenities stand to enjoy better-than-average appreciation and stable occupancy.
In the short term, tenants are experiencing some relief from the double-digit rent hikes common during the past two years. With vacancy rates climbing, more landlords are offering incentives such as a month of free rent or reduced security deposits. This echoes the findings of a report from Apartment List, which revealed that the percentage of rental listings featuring discounts is at its highest level since 2020. For investors, this creates an environment where careful underwriting and sharp asset management are imperative. Choosing submarkets with lower oversupply risk and focusing on properties with unique amenities or upgraded features can help maximize returns.
More importantly, the Arizona rental market is showing clear signs of bifurcation. While the high-end and newly built sectors are seeing more competition and lease-up incentives, the entry-level segment, catering to workforce housing, remains competitive due to ongoing affordability constraints. Investors exploring build-to-rent communities in the state have taken note of this gap. Companies like Invitation Homes and Progress Residential continue to expand their portfolios in and around Phoenix, focusing on single-family homes and townhomes aimed at long-term renters seeking the feel of ownership without the steep entry price.
In smaller cities and suburbs, such as Surprise and Goodyear, construction activity has increased to meet the shifting needs of families and remote workers. Here, investors report both stable occupancy and reasonable cap rates. The relative affordability of these areas, combined with their access to downtown Phoenix or employment corridors via expanding freeway networks, makes them attractive plays for investors seeking both cash flow and appreciation.
It is also worth watching how local and state policy will respond as vacancy rates climb. With some tenant advocacy groups pushing for rent stabilization or stricter eviction controls, investors will need to monitor the regulatory environment. As of June 2024, there are no statewide rent caps, but Phoenix city officials have begun studying strategies to address rising rents and homelessness. Prudent investors will keep an eye on legislative developments while focusing on well-managed properties and maintaining strong tenant relations.
In summary, while the Arizona rental market is no longer operating at the breakneck speed that characterized the post-pandemic boom, it is by no means slowing to a halt. The market is evolving, shaped by new supply, shifting demand, and economic headwinds. Investors with well-researched strategies are still finding opportunities, especially by targeting value-add properties, workforce housing, and well-located single-family rentals.
Given these trends, expert consensus is that Arizona will continue to offer strong potential for returns, but the era of easy profits is over. Diligent underwriting, smart property enhancements, and a careful watch on both economic and policy changes will be key for real estate investors hoping to thrive in Arizona’s next stage. At the midpoint of 2024, the message is clear: while the environment is more challenging, there remains significant prospect for those prepared to adapt.