By Jesse Fisher
Arizona’s rental market is making headlines again as new data emerges about rental rates, vacancy rates, and the ongoing demand for rental housing. Real estate investors have been watching the Grand Canyon State closely, given shifts tied to both national and regional economic factors. Over the past week, several local news sources and industry analysts have released updated statistics that are already influencing strategy for the remainder of 2024.
The latest report published by the Arizona Multihousing Association cited in the Arizona Republic earlier this week shows that apartment rents across metro Phoenix stabilized in May but remain notably higher than years prior. According to the association, the average rent for a Phoenix metro apartment is hovering around $1,558 per month. Although this figure represents an almost flat year-over-year change, it is up about 26 percent compared to rates seen in 2020. Cities such as Scottsdale and Tempe continue to command even higher averages, with rents exceeding $1,800 per month in many Class A properties.
While price growth has cooled compared to the meteoric rises of 2021 and 2022, Arizona still offers a relatively affordable market compared to high-cost coastal states. This relative affordability continues to drive migration from California and other expensive locales. For real estate investors, Arizona’s comparatively modest rents can support both steady cash flow and strong occupancy levels. However, with the market’s softening trajectory in mind, investors must be more discerning in their property selection and underwriting.
One headline that caught investors’ attention this week is the slight uptick in vacancy rates, especially across newly built inventory. CoStar’s new mid-year multifamily market update for Phoenix reveals the average metro-wide vacancy rate edged up to 8.4 percent in May. This figure is up from a little over 7 percent a year prior, signaling a moderate increase in unleased units. Submarkets with heavy new development, such as downtown Phoenix, Chandler, and Glendale, are experiencing vacancy rates climbing closer to 10 percent as supply outpaces near-term demand.
Part of the vacancy rise is attributed to the boom in apartment construction that began during the pandemic and reached its peak in 2023. In the last twelve months, more than 13,000 new apartment units were delivered across metro Phoenix, a record-setting pace for the market. Many of these buildings are still working to fill up, which means lease-up concessions and moderate discounting are more common. Industry analysts at Colliers International noted that these conditions may persist through late 2024 as more units are expected for delivery, adding pressure to landlords competing for tenants.
There is, however, some nuance within the trend. Older, value-add buildings and single-family rental homes in suburban neighborhoods continue to perform well, especially those located in the East Valley or northwest suburbs such as Peoria and Surprise. These areas have been less affected by the new supply surge and remain attractive to families priced out of homeownership or seeking more space. SFR occupancy remains tight, with single-family home rental vacancy rates below 5 percent in many neighborhoods according to data referenced by ABC 15 Arizona earlier this week.
Demand for rentals remains robust overall. Arizona’s population continues to grow, a trend highlighted in a KTAR News interview with economists from Arizona State University. The state attracts both in-migration and younger residents forming new households. While high mortgage rates have kept many would-be buyers on the sidelines, rental demand has been supported by job creation in tech, manufacturing, and logistics — industries that have seen recent expansion in the Phoenix, Tucson, and Prescott metros.
Renters are also changing their preferences, seeking modern finishes, smart technology, access to green space, and proximity to employment centers. Developers who cater to these demands enjoy shorter lease-up periods and an edge in occupancy. Conversely, Class B and Class C properties that lack updates may face longer vacancy periods unless owners reinvest in modernization.
Some uncertainty comes from the national economy. Mortgage rates remain high, making purchasing difficult for many households. However, there is speculation among industry experts, including those cited in Phoenix Business Journal coverage this week, that the Federal Reserve may begin to ease rates later in 2024 if inflation continues to cool. Should that happen, Arizona could see more renters transition to ownership, slightly reducing rental demand — though most experts believe the market’s absorption rate will remain healthy due to continued migration.
Investors examining the Arizona market should be mindful of hyper-local trends. Southern Arizona cities such as Tucson have seen more modest rent gains, with the average apartment now leasing for about $1,250 according to Tucson Association of Realtors figures. Tucson’s rental demand is strong near the University of Arizona and in established neighborhoods like Sam Hughes, while the downtown area has seen more inventory pressure. In contrast, the West Valley’s mix of affordable housing and proximity to major employment corridors has led to competitive rental bidding and limited inventory.
Another headline emerging from this week’s news is the debate around rental housing legislation. The Arizona State Legislature is considering new measures regarding short-term rentals and potential caps on annual rent increases. These legislative developments could affect investor risk calculations, especially for those focused on short-term or mid-term rentals using platforms like Airbnb or Vrbo.
For real estate investors, the picture in Arizona is one of adjustment and refinement rather than dramatic boom or bust. The days of 20 percent rent hikes are over, but the combination of higher-for-longer mortgage rates, ongoing in-migration, and persistent demand for quality rentals provides a steady backdrop. Investors who selectively target neighborhoods with strong amenities, proximity to job centers, and limited new supply are likely to see superior returns.
Value-add opportunities are still viable, but operational excellence and property upgrades are increasingly necessary to remain competitive in a rent growth environment that rewards quality. Asset management strategies focusing on resident retention, service delivery, and amenity enhancement will grow in importance as vacancy rates fluctuate. It remains to be seen whether new legislative proposals will meaningfully affect the rental landscape, but investors should keep an eye on policy shifts that could impact both pricing power and returns.
Looking ahead, most local market watchers and real estate economists see the Arizona rental market moving toward balance. High supply will temper rent growth in the short term, but Arizona’s enduring appeal as a destination for both businesses and residents is likely to sustain rental housing demand over the long run. Investors who remain attentive to neighborhood-level shifts, new construction trends, and evolving renter expectations will be best positioned to find resilient opportunities in 2024 and beyond.