By Jesse Fisher
Over the past week, a flurry of reports and data releases have shed new light on rental market trends across Arizona. Investors, property managers, and tenants alike are closely analyzing these shifts as they shape the current and future opportunities in the state’s robust real estate sector.
The Arizona rental market continues to attract significant attention, particularly from those aiming to diversify their portfolios into Sun Belt markets. According to a new report from Zillow published on June 12, rental rate growth is decelerating across Phoenix and Tucson, following the explosive price increases witnessed in 2021 and 2022. The Zillow Observed Rent Index (ZORI) now puts the typical Phoenix-area rent at just under $1,900 per month, a slight dip from its record-high last fall but still over 30 percent higher than pre-pandemic levels. Tucson’s typical rent on the index sits near $1,450, with monthly price changes flattening out since early spring.
The moderation in rent growth does not mean that demand has evaporated. Instead, several local market studies suggest that rental demand remains robust, especially in affordable segments and among mid-tier single-family homes. An article published June 9 in the Arizona Republic spotlighted steady application volumes across suburban Maricopa County, with investors and landlords citing a consistent pool of tenants looking for well-maintained inventory. In Phoenix, rental application activity is still up about nine percent year-over-year, demonstrating a persistent need for rental housing even as rates stabilize. The trend is mirrored in Tucson and growing cities such as Mesa and Gilbert, where new multifamily projects are pre-leasing units at a healthy pace ahead of late-summer move-ins.
Another headline from this past week came from the National Multifamily Housing Council’s June 2024 Southwest Market Survey. The report highlights that overall vacancy rates across Arizona metro areas have trended upwards to around 6.8 percent, higher than the national average of 6.1 percent. This is a reflection of the post-pandemic construction boom, with over 15,000 new apartment units completed statewide in the last twelve months. Phoenix has seen vacancy rates climb to 7.1 percent as newly built Class A properties come online, offering renters a wider selection and cushioning asking rents. However, vacancy in affordable and mid-priced units remains tighter—closer to 5 percent—suggesting that demand at lower price points remains extremely strong.
Some landlords have responded to these changing conditions by offering move-in incentives and short-term discounts. As reported in the Arizona Daily Star on June 11, free rent and reduced deposits are increasingly common on new-build properties in downtown Phoenix and Tempe, particularly where new supply is densest. This strategic use of concessions is aimed at quickly stabilizing properties before the end of the peak leasing season. For investors, this creates both challenges and opportunities. On one hand, analyzing deal performance now requires more nuanced assumptions about stabilization periods and effective net rents. On the other, plenty of landlords maintain strong occupancies by focusing on location, property condition, and tailored amenities.
Vacation rental markets are also adjusting to broader economic changes. A June 10 survey from AirDNA and Grand Canyon University found that average nightly rates for short-term rentals in the greater Phoenix area are down about 4 percent compared to last summer. Occupancies have slipped as travelers become more price sensitive and competition from new listings grows. For investors in this space, the news is a signal to carefully calibrate pricing strategies and explore property upgrades that create differentiation.
Despite the softening of headline rent figures and an uptick in vacancies, most analysts agree that longer-term demand drivers for rental housing remain secure in Arizona. Population growth remains strong, in part due to ongoing in-migration from other states. Data from the Arizona Office of Economic Opportunity, referenced in a June 8 KJZZ segment, indicates that Maricopa County gained about 70,000 new residents in the past year alone. Many of these new arrivals are millennials or young professionals who are more likely to rent, at least initially. In addition, the group’s median household incomes tend to be higher than previous generations of renters, which is helping absorb the elevated price points of recent years.
Another key aspect highlighted in last week’s news coverage involves broader economic uncertainty and its impact on housing choices. Mortgage rates have remained stubbornly above 7 percent for conventional loans, keeping many would-be buyers on the sidelines. Several Phoenix real estate brokerages quoted in the June 12 Arizona Business Journal noted that former first-time buyers are now competing for high-quality rentals, driving up demand for single-family homes in particular. The trend supports real estate investment in built-to-rent communities and scattered-site suburban SFR portfolios, a space that has seen a surge of institutional investment over the past two years.
Looking ahead, the outlook for Arizona’s rental market involves both normalization and continued opportunity. CBRE’s most recent market analysis, cited in a June 13 segment by ABC15, predicts that overall rent growth will likely lag historic highs for the rest of 2024, especially as more inventory delivers across metro areas. However, specific neighborhoods with good schools, transportation access, and lifestyle amenities are expected to outperform. For real estate investors, this underscores the importance of granular market research rather than relying on state-level averages.
Moreover, even with a modest rise in vacancies, the fundamental shortage of affordable rentals persists. The Arizona Department of Housing published a June 10 update stating that more than 210,000 additional rental units will be needed by 2030 to keep pace with projected population gains and surging demand among lower-income households. For mission-driven investors, value-add and affordable housing projects represent an area of both high need and long-term potential.
Seasonal patterns are also playing a role in current market dynamics. The weekly RentCafe report, released on June 11, pointed out that Arizona typically experiences heightened apartment search activity during June and July as universities release students and new job relocations peak. The data shows that while many prospective renters are looking for deals, few are willing to compromise on safety or commute times. Investors who can offer renovated units close to employment centers are finding that leasing timelines remain brisk, even in a cooling environment.
To summarize, last week’s wave of rental market data reveals a landscape in transition. Rents are no longer racing up, but fundamentals remain much healthier than in the years before the pandemic. Vacancy rates are drifting higher, but supply is being readily absorbed in desirable locations. For Arizona real estate investors, particularly those with a long-term focus, the region still offers attractive prospects. However, the days of across-the-board rent increases are likely over for now. Instead, success will hinge on smart acquisition, efficient management, and a laser-sharp focus on the evolving preferences of Arizona’s modern renters.
The nuances of today’s market reinforce the value of local expertise. Whether investing in a new multifamily community, a single-family rental, or a short-term vacation property, understanding the latest trends in rental rates, vacancy, and demand is critical for identifying opportunities and avoiding pitfalls. As the Arizona rental market continues to evolve, so too will the strategies of those aiming to capitalize on its dynamic growth.