Slight Operational Gains and Rebounding Multifamily Transaction Activity Define First Half of 2025 in Tucson

Multifamily properties performed fairly well in Tucson during the second quarter, which has historically been a period of operational softness. Vacancies inched lower and operators were able to implement rent increases that averaged a couple of dollars per month more across the market. Despite the slight improvement in recent months, current vacancies are about 150 basis points higher than their long-term averages, and deliveries have been limited to this point in 2025, a trend that is expected to reverse course in the second half. While more than 2,000 units are scheduled to be completed in the second half of this year, there is some uncertainty surrounding demand drivers. Employment growth has been muted since 2023, and recent immigration policies may limit population growth in Pima County.

Local investment sales volume in the first half remained ahead of the sluggish pace recorded in the same period of 2024. Similar to the first quarter, a few properties changed hands during the second quarter, after sales activity was essentially halted during the same period in 2024. Despite the rebound, current volumes are still modest compared to historical norms. Most transactions closed with prices between $130,000 per unit and $165,000 per unit, with the median sale price at $143,900 per unit. The current median sale price per unit is just 4% below the peak pricing posted in 2022. Transactions have been distributed throughout the market, with the Casas Adobes submarket holding the largest share. Class B assets accounted for the majority of sales in the first half, and for the first time since 2021, a Class A property changed hands.

Looking ahead

The second half of 2025 is poised to set the tone for future market performance in the Tucson region. With developers on pace to deliver new inventory in the coming months, there will likely be additional supply-side pressures that will create a more competitive leasing environment for current operators, particularly in the northern portion of the submarket, where new construction will be concentrated this year. Projects totaling approximately 1,650 units are scheduled to be completed this year across the Marana, Oro Valley/Catalina, and Northwest Tucson submarkets. While construction is on pace to remain elevated, the Tucson region outperformed historical averages during the second quarter, and the third quarter has historically been the strongest period for absorption and rent growth. Any strengthening of fundamentals in the third quarter would likely signal a larger stabilization across the local multifamily market.

The recent uptick in transaction activity in Tucson is likely to continue through the end of the year, though, similar to the first half of 2025, activity should still lag levels before 2023. Much of the upcoming transaction activity is poised to take place in the Central Tucson area, with the remainder spread out primarily in the Southeast Tucson, East Side, and Casas Adobes, areas where elevated activity is more common. These sales will likely focus on lower-tier Class C properties, though some Class A and Class B properties that are currently on the market may trade by the end of the year. Cap rates have held near 5.5% in recent periods and are unlikely to move far from this mark in 2025.

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