By Jesse Fisher
Arizona’s rental market has been making headlines over the past week as multiple national and regional industry surveys point to rapidly shifting trends in rental rates, vacancy numbers, and tenant demand. For local and out-of-state investors focusing on the Grand Canyon State, these latest data points indicate both new opportunities and fresh challenges as we head into the summer months.
According to the June 2024 Zumper National Rent Report, average rent for a one-bedroom apartment in Phoenix is now $1,290 per month. This marks a 3.2 percent increase over the past quarter and signals a reversal from the stagnant or even declining rental rates seen late last year. The Metropolitan Phoenix region outpaces several other Southwestern cities, with two-bedroom units averaging $1,550. While rents are again creeping upward, they remain below the peak levels reached during the frenzied market of late 2022 and early 2023.
Alongside these average numbers, local apartment tracking firm ABI Multifamily released survey results showing vacancy rates have ticked up modestly, with Phoenix posting a vacancy rate of 8.1 percent in May, up from 7.5 percent in September 2023. Tucson’s vacancy rate remains lower at 6.3 percent. Many analysts attribute the rise to a wave of new apartment deliveries just coming online, especially in the Tempe and Chandler suburbs, as well as stagnant wage growth relative to rent prices. The rise in vacancies has been more pronounced in luxury complexes, whereas Class B and C properties continue to see tighter occupancy.
The Sentinel Group published a report highlighting that recent in-migration to Arizona, a key factor supporting high demand in previous years, has slowed compared to 2021 and 2022. As a result, the pool of renters seeking properties has plateaued after several years of feverish growth. However, the state is still gaining new residents, particularly from California, the Pacific Northwest, and Texas, who are drawn by Arizona’s relatively lower costs of living and robust job market.
Despite these slight increases in vacancy, demand fundamentals appear favorable for landlords over the near term. The latest survey from Redfin shows that Phoenix ranks among the top ten U.S. metro areas where renters are still searching most actively. The city’s affordability relative to other Western metros continues to attract both long-term renters and remote workers. Additionally, a CNBC news segment aired last week noted that persistent unaffordability in the home-buying market is locking many would-be homeowners into the rental pool for longer. Mortgage rates remain elevated above seven percent, and median home values in the Phoenix metro are hovering just under $440,000. That high barrier to homeownership is helping to preserve a broad tenant base for Arizona landlords.
Property managers interviewed by the Arizona Daily Star this week have observed renters staying put for longer lease terms than typical prior to the pandemic. One manager noted that average lease durations have increased from twelve to sixteen months, signaling less turnover and less risk for landlords facing rising property taxes and insurance premiums.
For real estate investors, all these trends create a nuanced but promising outlook. On one hand, the era of double-digit annual rent increases is clearly over. The market now appears to be reverting to historical averages, where organic growth tracks with income and employment trends rather than surges of investor capital or rapid population influx.
On the other hand, Arizona’s overall economic picture remains sturdy. According to Moody’s Analytics, job growth in healthcare, logistics, and solar energy continues to outpace national averages. Apartment construction, though brisk, will not fully catch up with underlying demand for affordable rentals in Phoenix and Tucson for several more years. Builders are facing higher financing costs, and labor shortages continue to constrain new projects from advancing as rapidly as in previous years. This lag between completions and demand is likely to keep the rental market competitive, particularly for well-located properties near job centers and public transportation.
Another key survey published by Apartment List last Thursday indicates that more tenants are now opting for single-family rentals rather than traditional apartments. In the Phoenix metro area, single-family rental occupancy stands at 96 percent, higher than multifamily. This trend has been a boon for investors who acquired houses or townhomes for rental during the soft patch of 2023. Some institutional investors, most notably Invitation Homes, announced plans to expand their Arizona presence by buying another 400 homes by year’s end.
While the high end of the rental market has seen softening as new luxury units come online, demand for workforce housing remains robust. The National Low Income Housing Coalition ranks Arizona among the top five states with the largest gap between affordable units and renter households in need. This mismatch suggests continued demand growth for affordable and mid-range rental properties.
Another factor to watch is the return of seasonal renters, especially retirees and “snowbirds,” whose presence tends to tighten the market every year from October to April. Reports from the Arizona Association of Realtors suggest pre-bookings for winter months are already ahead of pace compared to last summer, especially in hotspots like Mesa, Scottsdale, and Sedona. For investors with flexible leasing strategies, this creates potential for higher yields in short-term or furnished rental segments.
Local governments are also responding to housing demand with new policies aimed at encouraging construction and densification. The City of Phoenix passed an ordinance just this month allowing higher-density “missing middle” housing in some residential neighborhoods for the first time in decades. Experts see this as a step toward a broader effort to add more inventory at accessible price points, which could gradually moderate both rent growth and vacancy in the years ahead.
At the same time, investors should keep an eye on proposed legislation at the state level that would increase tenant protections or cap rental increases for certain properties. While similar bills stalled in recent sessions, renewed discussions are expected to pick up again this fall, following public outcry over housing affordability.
In summary, the latest surveys and news reports show Arizona’s rental market remains a dynamic but now more normalized environment. Rental rates are rising again after a year of flat growth while vacancies have inched up due to new deliveries and slowing population influx. Demand fundamentals remain solid, buoyed by Arizona’s growing economy and persistent barriers to homeownership. There is a clear shift toward single-family rentals and longer lease terms, reflecting changing tenant preferences and investor focus.
For real estate investors, opportunity will favor those able to secure well-located properties at reasonable prices and operate efficiently in a market that is less forgiving than in the boom years. Keeping abreast of vacancy trends, new legislative developments, and shifts in tenant demand will be essential to outperform the broader market as Arizona moves into a new phase of rental housing competition. The market’s fundamentals remain favorable, but success will now be won by savvy management and a keen eye for emerging trends in both urban and suburban rental segments.