By Jesse Fisher
Arizona’s rental housing market finds itself in the midst of pivotal change as summer 2024 begins. New reports released over the past week shed light on shifts in rental rates, vacancy data, and evolving tenant demand. For property owners and investors evaluating Arizona’s rental landscape, this season’s developments offer both challenges and opportunities.
Recent data from Zumper and Apartment List show rents across Arizona have seen varied movement depending on city and property type. Phoenix, traditionally the focal point of rental growth in the state, recorded a modest decrease in average rents for one-bedroom units during May. According to Zumper’s June market report, median rent for a one-bedroom in Phoenix sits at $1,220, down around 2 percent compared to last summer’s high. Two-bedroom units also exhibited a slight dip, reflecting cooled tenant competition compared to the intense pace of 2021 and 2022.
Other large metros in Arizona tell a similar story, with Tucson’s median rent holding steady, reported at $950 for a one-bedroom as per the same Zumper survey. Scottsdale bucked this slight downward trend; driven by continued luxury demand, rents there notched a small increase of 0.9 percent month over month and now sit at a median of $1,700 for a one-bedroom. This divergence within the state illustrates how local market fundamentals are increasingly shaping investment outcomes.
Vacancy rates have also undergone a meaningful shift. The Arizona Multihousing Association cited new data showing Phoenix’s vacancy rate currently ranges between 8 and 9 percent, more than double the sub-4 percent rates seen two years ago. Tucson holds a marginally lower vacancy, but has also ticked up. This rise is attributed to a surge in multifamily completions, with developers delivering thousands of new apartments over the past 18 months. This expanded supply boosts choices for renters but means investors must sharpen their leasing and marketing strategies to minimize downtime.
Despite these pressures, demand fundamentals in Arizona remain robust, particularly in areas benefiting from in-migration and job growth. A new survey released last week by Apartment List highlighted the ongoing appeal of Arizona cities for renters relocating from higher-cost states. Metro Phoenix and surrounding suburbs remain magnets for out-of-state transplants, especially professionals seeking affordable Sunbelt living paired with strong employment prospects. The influx, though not as frenzied as in the pandemic homebuying surge, continues to support historically elevated rent levels compared to pre-pandemic periods.
Looking beyond rent and vacancy numbers, the composition of Arizona’s renting population is also shifting. While single-family rental homes continue to see healthy interest, state data shows apartment units make up the largest share of new rental inventory. In Phoenix, for example, multifamily construction is outpacing single-family rental development, creating a diverse range of choices spanning workforce, mid-tier, and luxury segments. Analysts from CoStar reported last week that absorption rates have slowed compared to 2022, but leasing activity is keeping step with new supply in neighborhoods with job centers or public transportation upgrades.
Investors weighing opportunities in the Arizona rental market must grapple with both immediate affordability concerns and long-term growth outlooks. On the one hand, the recent pause in rent growth offers an opportunity for renters to find deals, especially in communities experiencing higher turnover or more competition among landlords. On the other hand, persistent population growth and a tight for-sale housing market reinforce solid demand for rentals over the medium term.
The impact of higher vacancy rates cannot be ignored. Owners of older buildings, in particular, are finding it more challenging to compete against newly built communities offering concessions and modern amenities. Several property managers interviewed for a local ABC15 news segment this week reported increasing their advertising budgets and sweetening move-in incentives. Free one-month rent deals and flexible lease terms are now commonplace in submarkets like Mesa, Glendale, and Chandler. This competitive dynamic is likely to persist through the rest of 2024, especially if new projects keep coming online without a corresponding jump in new residents.
A notable trend discussed in Phoenix Business Journal’s latest housing roundtable is the growing interest among investors in smaller cities just outside the main urban cores. Chandler, Gilbert, and Goodyear are seeing an increase in both institutional and mom-and-pop buy-and-hold activity, as investors seek higher yields and less intense competition. Rents in these outer markets are holding steady or even rising at modest rates, partly due to their popularity among families and young professionals priced out of central Phoenix and Scottsdale. The presence of strong school districts and new infrastructure continues to fuel migration to these suburbs.
In the luxury and high-end market, Scottsdale stands out as an exception. New luxury rental communities have kept pace with demand from remote workers and well-paid transplants, especially in neighborhoods close to golf courses and high-end retail. Despite the state’s overall wave of new supply, these targeted markets report very low vacancy and are even seeing waitlists for larger, amenity-rich units.
Looking ahead, both local policymakers and market analysts are watching inflation and interest rate developments closely. Mortgage rates remain elevated, pricing many prospective homebuyers out of ownership and into rentals for the foreseeable future. This supports ongoing tenant demand, though rent affordability remains a widespread concern. Several local advocacy groups, referenced in an AZCentral report last Thursday, are lobbying for policies supporting the construction of more affordable rental options and enhanced tenant protections.
From an investment strategy perspective, the current environment in Arizona calls for agility. Investors who purchased during prior periods of tight supply and rapid rent increases will need to adjust to a market defined by greater tenant choice and slower leasing velocity. Property improvements, technology upgrades, and superior management service now play an outsized role in tenant retention and premium rent achievement. Meanwhile, new entrants to the market can find attractive acquisition opportunities, particularly among smaller multifamily assets experiencing elevated vacancy or motivated sellers.
In summary, while the Arizona rental market is no longer seeing the meteoric rent growth and ultra-low vacancy of the pandemic’s peak years, its underlying fundamentals remain strong. Sustained in-migration, a growing workforce, and a challenging for-sale housing market together underpin healthy tenant demand, even as supply pressures slow rent increases. For investors, a nuanced and local approach focusing on property quality, location, and tenant preferences is likely to yield the best returns in the evolving landscape. Watching local developments and staying responsive to shifting market dynamics will be essential for rental investors navigating Arizona’s complex terrain in 2024.