Tucson multifamily transaction counts surge in the third quarter

After market fundamentals stabilized in the second quarter of this year, multifamily operating conditions in Tucson softened in recent months. Rents have generally been trending lower since mid-2023, and the 0.5% dip during the third quarter is in line with recent trends. Vacancies have remained elevated for the past two years, and the average rate reached 8.8% as of the third quarter. Recent absorption totals have been healthy, totaling more than 2,700 units since the beginning of 2023. Still, net move-ins have not kept pace with deliveries, which have totaled nearly 4,300 units during the same timeframe. Recent absorption has been concentrated near the University of Arizona or in the Northwest Tucson and Tucson Mountain Foothills submarkets, while many other parts of the market have posted minimal or slightly negative renter demand in recent periods.

Multifamily investment activity accelerated in Tucson during the third quarter, with the year-to-date transaction count nearly surpassing the combined totals from both 2023 and 2024. While the increase in sales marks a rebound in investor interest, pricing continued to soften. The median sale price to this point in the year is $128,000 per unit, down 12% from 2024. This decrease in pricing can be attributed to the continued softness in operating conditions. The classes and the locations of the properties that are changing hands this year have been on par with recent years, though rising vacancy rates and falling rents have impacted net operating incomes. In the properties that have sold thus far in 2025, there has been a wide range in quality. The assets at the lower end of the quality spectrum are trading at elevated cap rates between 6% and 7%. Investors are also targeting recently renovated properties, which typically have lower cap rates but more stable operating conditions.

Looking ahead

The fourth quarter is expected to be an active period of new construction in the Tucson multifamily market, which should influence operating conditions in the coming period. There are roughly 2,000 units scheduled for completion between now and the end of the year, which would be a quarterly peak. While absorption in 2025 is tracking to be one of the market’s strongest years on record and renter demand will likely remain positive in the fourth quarter, it is not expected to keep pace with deliveries. The result of the forecast surge in inventory is another rise in the local vacancy rate. While the increases in deliveries will likely impact the Tucson area’s relatively limited inventory of Class A properties, demand for Class C buildings will need to stabilize for the overall market to steady. Class C vacancies have been trending higher for the past few years and topped 10% during the third quarter. As vacancy rates in the lower tiers level off and ultimately return closer to long-term averages, the overall outlook of the market should improve.

Multifamily investment sales in Tucson are expected to continue following current trends through the end of the year, with the number of transactions reaching a three-year high even as pricing remains below earlier peaks. Investors will continue to track the impact of new supply on operations at existing properties. Many of the recent sales have involved properties positioned to achieve stronger rent growth in the coming years as the market stabilizes. Class C and other value-add properties are expected to account for an increasing share of transactions throughout the remainder of this year and into 2026. This could result in some additional downward pressure on the reported per-unit prices for the market.

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