Metro Phoenix Apartment Owners Update – 4th Quarter 2024

We track quarterly market data on apartment sales, apartments “For Sale”, occupancy, rental rates and new apt. construction. To provide the best brokerage service to clients, this is just part of the information needed! Considering Selling, Buying or just need info on our market – give us a call. Experienced – Dedicated – Track Record

DOWNLOAD – 2024 Q4 Metro Phoenix Apartment Owners Newsletter With Sales

Year	Units Constructed	Vacancy
2017	6,543	5.4%
2018	8,162	5.0%
2019	9,008	5.1%
2020	8,817	4.5%
2021	9,892	4.2%
2022	16,016	5.9%
2023	17,092	6.8%
2024	21,504	7.0%

Completions Remain Very Strong & Will Continue to Impact Rents and Vacancy

In 2024 there were 21,504 apartment units (91 properties) completed – a strong increase from the previous two years and more than double earlier years (see table). With 47,301 units Under Construction, and almost half of these having already started leasing, this completion trend should continue for a year or two and continue to put pressure on occupancy and rental rates. With only 21,548 units Planned, the completions should then drop off in a year, maybe two, creating a supply shortage and a return to increased rent, occupancy and apartment value growth. With 94,620 Prospective units and a total of 163,706 units in the pipeline, this confirms developers are very keen on the overall long-term, metro Phoenix multifamily market. In addition to the new apartments under construction, there are 88 “build to rent homes” projects in the pipeline with a total of 18,876 units. Of these, there are 9,459 units (46 properties) under construction with 5,568 units (27 properties) already leasing. While this may only add a small percentage compared to the new apt construction, it still adds pressure on occupancy, rental rates, move-in incentives and overall cash flow.

Vacancy Up – Rents Continue Decline

Rents and vacancy rates continue to be under pressure from the strong new apartment construction – a similar scenario currently in many sunbelt cities. Yardi Matrix reports overall vacancy rates at 7.0% (50+ units) while CoStar reports overall vacancy at 11.3% (all size units). Other agencies report even higher vacancy rates, but what’s important is that the trend with each agency shows an increasing vacancy rate. Every agency also reports a decline in rental rates and an increase in concessions. This trend is also likely to continue. Multiple owners and apartment managers suggest doing what you can to keep existing good tenants and use concessions and more amenities in lieu of reducing rents.

Impact of high interest rates

Many properties with loans adjusted to current interest rates are struggling to keep payments current. With mortgage rates staying at or near current levels – owners with cash-flow issues may need to work with their lenders or consider selling to preserve equity. We helped many owners in 2008 – 2010. Happy to provide our insight.

Good News – Just Have Patience

As noted on the front page, the two biggest factors impacting our market are the record-setting number of new apartments being constructed and the high mortgage interest rates. The increased supply has continued to put pressure on rental rates, occupancy and overall cash flow. The high mortgage rates have created a sharp decrease in apartment transactions, especially with 20 units or more, and cash-flow stress on all properties with loans that have adjusted to current rates.

Nationwide, at the end of January, Multifamily CMBS distress rate reached 12.9% (CRED iQ). This was the tenth straight monthly increase. While the Feds have been reducing rates (overnight cost of funds), the increased yield of the 10-year T-Bill continues to maintain high mortgage rates. As inflation drops – loan rates will drop, and apartment sales and property values will increase. Even if cash flow is currently a challenge, buying assets now at lower prices should be rewarded by increased future property values.

Opportunity. In the interim, some properties with loans that have increased to market rate are struggling with cash flow. The Tides on East Broadway was their second sale via foreclosure in 2024. This property was purchased in August 2021 for $53.1M and sold in October 2024 for $40M. A few other properties are currently in foreclosure but many have late loan payments. To provide the best service to our clients, we subscribe to CoStar, LoopNet, Yardi Matrix, Crexi Pro, Reonomy, Vizzda, our own database and various public data sources. Using each source we are currently tracking multiple loan types with delinquent loans. Plus, our team also tracks properties Debt Service Coverage Ratio – DSCR (NOI/Annual Loan Payment). A DSCR below 1.0 implies owner’s net income (NOI) does not support the loan payment. Let us know if you have an interest in buying properties possibly at a discount and/or at a Trustee Sale. If you are facing cash-flow concerns, we’re also very good working with your lender and/or maximizing a sale price.

The Good News. With the projected reduced apartment supply and lower mortgage rates – combined with our diversified, vibrant economy creating JOBS and increased population – we see a very bright future for our apartment market in the next year or two. Two of the strongest economic drivers are Intel’s $20 Billion expansion in Chandler and TSMC’s $65 Billion state-of-the-art semiconductor facilities in north Phoenix. Metro Phoenix has about 68% of the population of Arizona and is one of the fastest growing states in the US. 26% of Arizona’s in-migration is from California and rental rates in Metro Phoenix are more affordable allowing for a strong upside. The average rent is +$1,000/month less than similar apartments in San Francisco or Los Angeles.

Small Apt Division – Owners of smaller apartments deserve the same service as we provide to larger properties. Let us obtain the best buyer and highest price possible. Experience and market knowledge make a difference. Note that although there were only 18 properties sold with 24 units or more in Q4, there were 58 properties sold with 4 to 15 units.