February 19, 2025

Elevated Absorption Totals Offset the Bulk of the New Multifamily Units Coming Online in Tucson

Q4 2024

While some conditions have softened in the Tucson multifamily market, rents and vacancies both have remained within a tight range in recent periods. Developers continued to deliver units at a rapid pace in 2024, but a decade-high level of absorption has softened the competitive impact of new units entering the market. Net absorption in Tucson totaled more than 1,600 units in 2024, or about 85 percent of total completions. Since the beginning of 2023, the spike in construction has grown local inventory by 5 percent; during the same time period the vacancy rate has increased by just 90 basis points. Asking rents have held mostly steady during the same time period.

Multifamily transaction volume in Tucson was light in the fourth quarter, though the number of sales closely tracked the volumes recorded in recent periods. Total sales in 2024 slightly outpaced levels from 2023, though both years were modest compared to historical averages. While the total number of transactions remains low, pricing on the properties that sold has increased since 2023. The median price in 2024 was $146,200 per unit, up 17 percent from the previous year and down just 2 percent from peak levels recorded in 2022. This recent increase can be attributed to rising prices for Class B sales. The median price for middle-tier properties was $181,200 per unit in 2024, up significantly from historical levels. The Casas Adobes area led Tucson in activity, accounting for more than 40 percent of sales in 2024. Pricing in the submarket has risen by 35 percent since 2022.

Looking ahead

Multifamily property conditions in Tucson during the next 12 months will likely look similar to 2024. The market will continue to work through elevated supply levels, although the pace of deliveries slowed in the fourth quarter and should cool modestly in 2025 as well. Still, supply-side pressures should persist, and there is greater uncertainty on the demand side. The local economy has been expanding at a fairly steady pace in recent periods, and further gains should support operations and absorption. The influx of new properties with popular amenities into the market should ultimately support higher average rents, but it will likely take a few more quarters of move-ins for conditions to stabilize.

While investment conditions have steadied since the volume of deals contracted significantly in 2023, it is unlikely that 2025 will bring a rebound in activity. Investors will likely want to see property operating fundamentals stabilize before returning to the market in any significant numbers. The country’s evolving stance on immigration and deportations adds another layer of uncertainty to the Tucson market, which may cause investors to pause until there is greater clarity. Investors will continue to monitor lease-up activity among new properties and absorption at existing buildings. Traditionally, the local investment market has been fueled by activity in Class B and Class C assets, and if these older vintages continue to outperform, there could be resumed investment activity in the coming quarters.