Phoenix Multifamily Development at a Crossroads

The Phoenix multifamily market is working through one of the biggest supply waves in its history. Absorption has rebounded, but the sheer volume of new construction continues to shape the story. For developers, landowners, and investors, the key question is not whether people want to live here (they do) but whether the timing makes sense for new projects.

All data referenced below is sourced from CoStar Multifamily and Multifamily Capital Markets reports.

Existing Properties Show the Strain of Oversupply

On paper, demand looks solid. Over the last 12 months, Phoenix absorbed 17,000 units, more than double the pre-COVID average of 7,200. That figure places us in the top ten nationally for demand formation.

But the supply side is overwhelming. Developers completed 23,000 new units over the same period, three times the pace we saw between 2015 - 2019. With another 22,000 units underway (about 5.3% of existing inventory) Phoenix ranks as the sixth most aggressively built market in the U.S.

The impact is obvious in the numbers:

• Vacancy has climbed to 12%, a 15-year high, compared with a U.S. average of 8.2%.

• Asking rents have fallen 2.9% year-over-year, marking the third straight year of negative growth.

• Concessions are widespread, with six to eight weeks of free rent standard at new communities and, in some cases, as much as four months.

• Even stabilized Class B and C properties are now offering four weeks free to stay competitive.

In short: existing properties are carrying the weight of oversupply, and that has direct implications for new development decisions.

Where New Construction Has Hit Hardest

The recent construction wave has been most pronounced in Downtown Phoenix, Tempe, and the West Valley. These submarkets are now struggling with elevated vacancies and deep concessions as thousands of units deliver at once.

• Downtown Phoenix: Projects like Rosie (370 units) and Saiya (389 units) opened this summer near Roosevelt Row, with another 1,900 units underway. That’s a concentration of high-end supply targeting the same renter pool.

• West Valley: Since 2020, the North and South West Valley have added 23,000 units, with nearly a third of that in build-to-rent (BTR). The scale of delivery has driven stabilized vacancy above 14%, with property managers reporting sluggish performance.

• Tempe: The student and young professional base has supported demand historically, but with nearly 11% vacancy and heavy concessions, the submarket is feeling the pressure of back-to-back construction cycles.

By contrast, submarkets with higher barriers to entry, like Chandler, Gilbert, Camelback Corridor, and Old Town Scottsdale, are more insulated. Stabilized vacancy in Scottsdale and Gilbert sits below 7%, and these areas are likely to recover faster once the broader market stabilizes.

Pipeline and Outlook: Fewer Starts, But Plenty Left to Digest

The good news for the long-term health of the market is that construction starts have slowed dramatically. Today’s 22,000 units under construction represent a 40% decline from the mid-2023 pipeline peak. Developers are pressing pause due to weaker property performance, higher construction costs, and tighter equity.

That slowdown is important, but it won’t be felt immediately. The projects already underway will keep delivering through 2026, which means elevated vacancy and negative rent growth will likely persist for the next 18 - 24 months.

Forecasts suggest that by late 2026 or early 2027, as supply pressure eases, rent growth can turn positive again. But it won’t be even across the Valley. Submarkets with lighter pipelines should stabilize first, while those that saw the heaviest deliveries will lag.

Land Buyers: Who’s Active and Why

One of the more interesting dynamics today is who’s actually buying land. For the past 18 months, affordable housing developers have been the most consistent takers of multifamily land. With public incentives and a countercyclical mandate, they’ve been able to move deals forward while market-rate developers sat on the sidelines.

But that’s starting to change. We’re seeing market-rate developers quietly step back in, not everywhere, but in targeted locations where the long-term fundamentals support absorption. Their reasoning is straightforward:

• Entitlements typically take 12–18 months to complete.

• Construction adds another 12–18 months.

• That means sites put under contract today are delivering in late 2026 or 2027, precisely when rent growth is projected to turn positive again.

In other words, developers underwriting deals now aren’t playing for today’s 12% vacancy. They’re betting on a healthier market two to three years down the road.

Sales Market: New Product Still Finding Buyers

Despite the challenging operating environment, new construction has remained attractive to certain buyers. In fact, about 40% of all sales volume since early 2024 came from properties that traded within two years of delivery, up from just 15% a few years ago.

Institutional investors are paying premiums for quality assets:

• Soltra at Kierland (North Scottsdale, delivered 2024) sold for $107.5M, or $532,200/unit, the highest per-unit price since 2022.

• Spire Deer Valley sold for $141M ($337,900/unit) and was named CoStar’s Phoenix Multifamily Development of the Year.

Meanwhile, older Class B/C product has seen pricing fall 20–40% from peak values. That divide underscores the market’s preference for new, best-in-class properties, even if they come with lease-up challenges. For developers, it means that well-located new projects can still exit profitably, but marginal locations face real headwinds.

Economic Drivers Still Support Long-Term Demand

It’s easy to get lost in the near-term oversupply story, but the long-term fundamentals remain strong. Phoenix continues to be a magnet for people and jobs:

• The metro added 85,000 residents recently, ranking sixth nationally.

• Migration from California remains a major driver, with Arizona pulling more net residents from the Golden State than the next ten states combined.

• Industrial growth is headlined by TSMC’s $100 billion expansion in North Phoenix, plus Amazon’s million-SF distribution leases in the West Valley.

The economic base is diversifying, the population is growing, and the relative affordability compared to coastal markets remains a competitive advantage. These trends give confidence that once today’s construction wave is absorbed, demand will be there to support the next one.

Takeaways for Landowners and Developers

1. Timing is critical. With vacancy at 12% and thousands of units still in lease-up, equity has been hesitant to support projects without a great story.

2. Submarket matters. Locations like Gilbert, Chandler, and Camelback Corridor are more resilient today and will likely be first to rebound. Downtown and much of the West Valley will need more time.

3. Quality still sells. Investors are showing up for new Class A assets in core locations, B/C product has limited liquidity.

4. Watch the buyers. Affordable developers have kept land trading, but market-rate players are starting to be more aggressive in select areas. Their timing lines up with the next expected growth cycle.

5. Expect recovery, but not before 2026. Starts are slowing, which sets the stage for a healthier balance down the road. But in the near term, elevated concessions and negative rent growth are the reality.

The Bottom Line

Phoenix is in the thick of digesting one of its largest construction booms ever. Demand is solid, but the supply machine ran too hot, too fast. Developers who already have projects underway will face a tough lease-up environment in 2025 and likely into 2026.

But as starts slow and the Valley’s population keeps growing, conditions will reset. Landowners who can hold through the near-term turbulence, and developers who secure well-located sites now, stand to deliver into a very different market just a few years down the road.

Thanks for reading, as always, please reach out with anything we can help you with.

Thanks,

John & Ramey