Rents continue on an upward trajectory

The Greater Phoenix multifamily market closed out another strong year in 2017. Vacancy inched higher in the fourth quarter, but the rate is still lower today than it was one year ago. Vacancy has remained in a very tight range since the second half of 2014, with the rate never ticking above 6.5 percent or below 5.0 percent.

The vacancy rate has remained low even as a wave of new units has come online. Deliveries peaked in 2017, and the pace of new construction will likely slow in the year ahead. While the number of new units forecast to come online in 2018 will mark a dip from the 2017 total, deliveries are being spread across a greater number of submarkets than in recent years.

More than half of the submarkets in Greater Phoenix have units currently under construction, with activity picking up in areas such as Peoria, Goodyear and Avondale.

Sales of multifamily buildings were very consistent throughout 2017. During the fourth quarter, transaction velocity was nearly identical to figures for the first three quarters of the year. The underlying health of the market is driving investor demand, particularly as new projects get leased up and rents continue to tick higher.

Cap rates compressed in 2017, particularly during the second half of the year. Cap rates averaged 5.5 percent during the past 12 months, a modest decline from 2015 and 2016 levels.

Key Takeaways:

There has proven to be sufficient renter demand in the market to absorb the new inventory coming online. With vacancy levels remaining low, rents are posting healthy gains.

Vacancy ticked up 20 basis points during the fourth quarter, reaching 5.9 percent. Despite the modest rise in the final few months of 2017, vacancy is 10 basis points lower than one year ago.

Asking rents rose 6.8 percent in 2017, ending the year at $994 per month. This marked the third straight year where asking rent gains exceeded 6 percent.

With rents on an extended upswing, multifamily prices are pushing higher. The median price rose 6 percent in 2017, topping $110,000 per unit.

Cap rates compressed slightly, averaging in the mid- to low-5 percent range for most of the year.


The Greater Phoenix multifamily market is positioned for another year of strong performance in 2018. Vacancy has declined in four of the past five years, even as more than 32,000 new units have been delivered to the market during this time.

Persistent renter demand for apartments has more than offset the impact of new inventory, driving vacancies lower and pushing rents higher. Looking forward to 2018, vacancy may inch higher—an annual increase of approximately 50 basis points is likely—but rents should continue to advance at a healthy pace. Metro-wide average asking rents will top $1,000 per month as early as the first quarter of 2018.

With property revenues on the rise, the local investment market should remain strong in the year ahead. Property sales have followed a consistent arc over the past 18 months, with little quarterly fluctuation in sales velocity. Pricing has trended steadily higher and cap rates have compressed slightly, even as interest rates have ticked up a bit.

The Federal Reserve will likely increase interest rates a few times in 2018, and there are some additional market pressures that could push lending rates higher. To this point in the cycle, the market has shown an ability to absorb interest rate hikes without slowing transaction activity, a trend that is likely to continue due to the strong investor demand for local multifamily properties.