Phoenix multifamily vacancies tighten in response to persistent demand

Phoenix multifamily market overview

Absorption has outpaced deliveries of new units in the Phoenix multifamily market to this point in 2026, pushing the vacancy rate lower and allowing room for modest rent growth in each of the first two quarters of the year. In the second quarter, absorption totaled nearly 6,000 units, bringing the year-to-date total to more than 12,400 units. Absorption has maintained a steady pace since the beginning of 2025, averaging more than 5,600 units per quarter, even during periods of below-trend employment growth. This persistent demand is supporting operational improvement at a time when developers are returning the pace of deliveries closer to long-term averages. Fewer than 6,700 units came online in the first half, the lightest level of deliveries at the midpoint of a year since 2022. Additionally, the number of units under construction has declined in seven of the past eight quarters, and the current levels are the lowest in the Phoenix area since the beginning of 2021.

Multifamily sales velocity picked up slightly in Phoenix from the first quarter to the second quarter, but overall levels remain modest and transaction counts are lagging the pace recorded during the same period in 2025. Investment activity is concentrated among newer assets, with Mesa, Gilbert and Peoria the most active suburban cities for recent transactions. Within the city of Phoenix, activity has generally been clustered around Deer Valley and in the Uptown and Biltmore areas. Investors are targeting properties within employment corridors with area amenities that attract and retain renters. To this point in the cycle, fewer properties have sold in submarkets where renter retention has traditionally proven to be more challenging during periods where renters have more options.

Looking ahead for Phoenix:

The Phoenix multifamily market is expected to benefit from steady renter demand conditions and a slowing pace of new deliveries. Through the first six months of 2026, net absorption of units is slightly ahead of the 2025 pace, while deliveries are down 13%. The second half should mark a steeper drop in the pace of new development. More than 14,000 units came online in the second half of last year, but developers are expected to deliver about half that total in the same period in 2026. This should return the market closer to longer-term supply growth patterns following a three-year stretch where developers completed more than 65,000 units across Greater Phoenix. While the pace of supply growth is stabilizing, demand drivers are gaining momentum. Employment growth is beginning to bounce back after a weak year in 2025 and large capital investments support continued expansion in the coming years.

Investment activity is expected to persist in the second half of 2026, and large transactions involving properties delivered in recent years are likely to continue to lead the way. More than 100 recently delivered multifamily communities have been sold since 2020, a trend that should persist in the coming quarters. While activity for newer assets has proven to be fairly consistent in recent years, investor demand for Class B and Class C assets has been uneven. These properties typically account for a significant share of the total investment activity in the Phoenix market, but a mix of heightened financing costs, occupancy pressures and rent declines have stifled demand for these communities. While interest rates are expected to remain elevated through the coming quarters, occupancies and rents have shown recent signs of improvement, which could spur investor demand if conditions maintain the current trajectory.

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