Sales Velocity Gains Momentum as Multifamily Absorption Spikes in Phoenix

A surge in absorption of units is keeping average vacancy rates steady across the Phoenix multifamily market, even as new units continue to be delivered. Net absorption totaled more than 9,000 units in the first half of this year, with the figure reaching approximately 5,500 units in second quarter. Absorption totals in the first half were up 19% compared to the same period in 2024. The pace of renter move-ins is surprisingly strong in a period of slowing economic expansion; area payrolls have grown by less than 1% during the past year, when average gains of 2.5% to 3.0% have been common over the past decade. The surge in absorption has stabilized vacancies but has not resulted in significant rent increases to date. Current rents are down compared to one year ago and have inched up just 0.1% through the first two quarters of 2025.

After a particularly slow period of transaction activity at the start of 2025, the Phoenix multifamily investment market gained momentum during the second quarter. The number of properties that sold more than doubled from the first quarter to the second quarter. Despite the recent surge in activity, year-to-date transaction counts are similar to levels from the first half of last year, signaling that the investment market has not fully rebounded. While interest rates have remained elevated, cap rates have mostly leveled off, with most sales occurring with cap rates between 5.0% and 5.5%. The per-unit price in closed deals has dipped, due in part to a broader mix of properties changing hands. In 2024, newer buildings accounted for a larger share of deals than they have to this point in 2025.

Looking ahead

The Phoenix multifamily market is expected to record some modest softening in 2025, although robust renter demand through the first half of the year has brightened the overall outlook. While renters continue to lease new units, the pace of deliveries is expected to accelerate in the second half, and the most likely outcome is that new supply growth will outpace demand by year end, resulting in a modest increase in vacancy. Longer term, supply-side pressures should ease. The current construction pipeline includes nearly 25% fewer units than at the peak a few years ago, and with deliveries outpacing construction starts, the competitive impact of new supply will ease beginning in 2026. Renter demand has been elevated despite a below-trend pace of employment growth at the local level. For recent absorption levels to be sustained, a return to historical job growth patterns would be required.

The recent accelerating pace of transaction activity could serve as an early indicator of a thawing in the multifamily property sales environment. Transaction counts in the second quarter reached their highest point since the end of 2022, with a mix of newer properties as well as older vintages changing hands. Transaction patterns in the coming months will be a way of telling if the surge in transactions recorded in the second quarter was a function of deals that might have otherwise closed at the end of 2024 or during the first quarter of this year, or if the expectations gap between buyers and sellers has narrowed to the point where more deals can get done. Cap rates have not pushed considerably higher since the beginning of 2024 and interest rates have not shown any clear signs of creeping lower, two factors that may hinder deal flow in the second half.

Learn more

Contact our Phoenix office for more information.