Phoenix Multifamily Real Estate Market – Q3 2025 Overview

Phoenix’s apartment market in Q3 2025 is navigating a period of correction after a historic development boom. Supply has far outpaced demand in recent years, pushing the metro’s vacancy rate to its highest level since the Great Recession. Rents have softened across property classes, even as underlying fundamentals like population and job growth remain strong. This comprehensive analysis of multifamily real estate trends in Arizona’s Phoenix metro will examine supply-demand dynamics, rent and concession trends by asset tier and submarket, investment sales activity, economic drivers, national comparisons, and emerging design and development patterns. The goal is to provide both investors and developers with a nuanced Phoenix apartment investment 2025 outlook, balancing current challenges with long-term opportunities.

Supply and Demand Dynamics in Phoenix Apartments

After a frenzy of construction, Phoenix’s multifamily supply and demand are out of sync in 2025. Over the past 12 months, developers delivered approximately 23,000 new units – more than triple the pre-2020 annual average – while net absorption (demand) totaled about 17,000 units. This persistent gap has driven the overall vacancy rate to 12.0%, a roughly 15-year high. By contrast, U.S. apartment vacancy is around 8.2%, indicating Phoenix’s vacancy is nearly 400 basis points above the national level. In fact, Phoenix now ranks among the top 10 highest-vacancy large markets, alongside other Sun Belt cities that saw aggressive building like Austin and Charlotte. CoStar data illustrates how the surge of new deliveries since 2020 has quickly elevated vacancy despite robust demand gains.

As of Q3 2025, another 22,000+ units remain under construction across the metro, equal to 5.3% of existing inventory. This pipeline makes Phoenix the sixth most aggressively built apartment market in the nation. Empty units are piling up fastest in high-growth development nodes – for example, Downtown Phoenix, Tempe, and the West Valley – where many projects are in lease-up. With so much new supply, overall vacancies are expected to stay elevated throughout 2025 and into 2026 until the glut can be absorbed. Developers have responded by pulling back on new starts – permit issuance over the past two years has fallen sharply due to weaker property performance, higher costs, and tighter equity. This should translate into a lighter delivery schedule by 2026, allowing the market to gradually rebalance.

Submarket Performance: Core vs. Periphery

Market conditions vary widely by submarket. Established, supply-constrained areas are faring better than outlying growth areas. Old Town Scottsdale and the Camelback Corridor (central Scottsdale/Phoenix) have some of the lowest vacancy rates in the metro – stabilized vacancy is under 7% in parts of Scottsdale and in Gilbert. These areas saw relatively limited new construction due to high land costs and tougher entitlement processes. Chandler and other East Valley suburbs with fewer deliveries have also maintained healthier occupancy. By contrast, suburbs on the metro’s fringe are grappling with a glut of new units. For instance, the West Maricopa County submarket (far West Valley) has a vacancy rate above 25%, highest in the metro, after an onslaught of new projects increased inventory. The Southwest Valley and Southeast Valley (e.g. Queen Creek, far East) also have elevated vacancies in the mid-teens or higher. In emerging areas with abundant land, developers added tens of thousands of units since 2020 – notably 23,000 units in the Northwest and Southwest Valley submarkets alone – dramatically intensifying competition. Local operators report sluggish lease-ups and rising concessions in these outer submarkets. The silver lining is that demand is also strong in fast-growing areas (the Southwest Valley led the metro in annual absorption, leasing over 2,700 units in the past year). As construction tapers off, even these oversupplied zones should see vacancy improvement, though they trail the more supply-constrained core areas in the recovery timeline.

Rent Trends and Concessions by Class and Submarket

Phoenix renters have gained bargaining power as supply expands. Annual rent growth turned negative in early 2023 and remains in the red as of Q3 2025. In the past 12 months, the average asking rent in Phoenix fell 2.7%, making it one of the worst-performing apartment markets for rent growth among major U.S. metros (those with at least 75,000 units). For context, Phoenix enjoyed roughly 5% yearly rent gains in the five years pre-pandemic, but is now experiencing a rare multi-year rent correction. Nationally, rents are still rising modestly – the U.S. average was about +0.7% over the same period – underscoring how uniquely soft the Phoenix market is in 2025. This weak rent performance is expected to persist through most of 2026 until the excess supply is digested. Effectively, 2025 will mark the third consecutive year of negative rent growth in Phoenix, a stark reversal from the double-digit rent surge seen in 2021.

Rent Declines Across Asset Quality Tiers

Notably, rent declines now span all quality tiers of product. Early in the downcycle, lower-tier Class B/C properties had held up better, but that is no longer the case. Top-tier luxury communities (4 & 5 Star) have seen the steepest drops as they compete directly with new supply: effective rents for Class A units are down about 2.6% year-over-year. To remain competitive with brand-new lease-ups offering discounts, many Class A landlords have reduced face rents – Phoenix’s high-end segment has some of the largest rent cuts in the country. Meanwhile, mid-tier (3 Star) apartments – typically mid-priced “workforce” housing – recorded an even larger 3.1% decline in asking rents over the past year. And Class C (1 & 2 Star), which previously was insulated by affordability, saw rents slip roughly 2.0% on average. In essence, no segment is escaping the rent weakness: luxury, core urban high-rises and suburban garden complexes alike are all trimming rents. Occupancy pressure has trickled down from the new builds to stabilize older assets, erasing pricing power even at the low end.

Aggressive concessions underscore the renter’s market conditions. Over 50% of local communities are now advertising some form of discount. Concessions of 6–8 weeks free rent have become the norm at newly delivered luxury properties in lease-up. In certain heavily supplied areas (Downtown Phoenix, Tempe, West Valley), renters can find even sweeter deals – for example, one new high-rise tower in Downtown (PALMtower) is offering up to 4 months free on select units. Even many stabilized Class B and C properties have begun offering 1+ months free rent or other move-in specials to retain and attract tenants. Landlords are also more flexible with terms, giveaways, and broker bonuses as they fight for occupancy. According to local property managers, concession usage may not peak until the latter half of 2026, after which freebies will slowly “burn off” once excess vacancies are absorbed. This suggests another year or more of a tenant-favorable market. Rent growth is expected to resume only gradually – forecasts call for Phoenix effective rents to start rising again in late 2026 or 2027, and even then likely at well-below-average rates.

Submarket Rent Variations and Recovery Timeline

Rental trends vary by location in tandem with vacancy patterns. Generally, submarkets that avoided a construction deluge are seeing flatter rents and fewer concessions, while those hit with a supply wave are cutting rents the most. For instance, Southwest Phoenix/South Mountain apartments have offered discounts to backfill new projects, whereas an area like Camelback East (a mature infill area) has held relatively steady. CoStar data indicate that submarkets such as Chandler and the Camelback Corridor – which faced limited new inventory growth – are poised to return to positive rent growth earlier, possibly by 2025’s end or early 2026. On the flip side, Downtown Phoenix, Tempe, and the West Valley (places with a hefty pipeline still in progress) are likely to lag in rent recovery. These areas may not see rents stabilize and rise until late 2026 or beyond, once the construction hotspots cool down. In the interim, renters in overbuilt locales will continue enjoying rent reductions and specials, while owners in supply-constrained submarkets could start regaining pricing power sooner. This emerging divergence means investors should be submarket-selective – focusing on neighborhoods with high barriers to entry or job drivers – as the Phoenix market works through its overall reset.

Investment Sales and Pricing Trends

Multifamily investment activity in Phoenix has slowed from the record pace of 2021–2022, but there are signs of life as buyers and sellers adjust expectations. In the past 12 months, about $4.3 billion in Phoenix apartment properties traded, up from only $3.6B in 2023. While that ~20% year-over-year jump signals improving liquidity, the deal volume is still roughly 25% below Phoenix’s pre-pandemic average sales level. High interest rates and operational headwinds have kept many would-be sellers on the sidelines, so transaction flow remains thinner than normal. However, well-capitalized investors are circling and selectively pursuing Phoenix apartment investment opportunities in 2025, particularly for high-quality assets at prices not seen in years.

Buyer Focus on Quality and Pricing Reset

Amid the disrupted market, investors are gravitating toward core, institutional-quality properties. Demand remains elevated for stabilized Class A communities in premier locations, which are viewed as long-term winners. In fact, Phoenix multifamily brokers report cap rate compression for top-tier deals recently – a few prime assets traded in the high-4% cap rate range in 2025. For example, Goodman Real Estate acquired two newly built Class A complexes this year at about 4.8%–4.9% cap rates. One of those, Spire Deer Valley, sold for $141 million (~$338k/unit) in January 2025. Another headline sale was Soltra at Kierland in North Scottsdale – a mid-rise luxury asset – which fetched $107.5 million (a metro record $532,200 per unit) in April 2025. These deals indicate that for the best properties, investor appetite is still strong and pricing remains relatively robust (not far off peak values).

Many of the properties changing hands are actually new deliveries. Roughly 40% of Phoenix’s sales volume since early 2024 has come from properties less than 2 years old, up from just 15% in 2021–2022. Merchant builders are listing newly completed communities – often as planned exits – and despite the soft market, they’re often still hitting pro forma targets on those sales. Buyers, for their part, are bargain-hunting for newer assets at a discount to recent peak pricing. In effect, both sides are finding some equilibrium on brand-new Class A deals. Meanwhile, trading of older Class B/C product has been sluggish. Private buyers and syndicators who typically target 1980s-90s vintage apartments now face higher financing costs and are insisting on “day one” positive leverage (cash flow). Many sellers of these value-add assets are unwilling to slash prices to those levels, so they are opting to hold rather than sell at a steep discount. The result is limited price discovery in the B/C segment – the few sales that close suggest 20%–40% value declines from the 2021 peak. For instance, The Neiders Company purchased a 1970s garden property (U at 19th) in September 2025 for $36.1M ($153k/unit), which was 39% lower than the $59.1M ($250k/unit) it sold for in late 2021. Such comps confirm a significant pricing reset for older Phoenix apartments.

Cap Rates and Capital Market Conditions

Investor yield requirements have risen in tandem with interest rates. Phoenix’s market cap rate (overall) moved up into the mid-5% range in 2024–2025, from the low-4% territory at the market’s frothiest point. Recent sales across all asset classes in Phoenix averaged around a 6.0% cap rate, according to CoStar, though individual deals ranged from the mid-4s up to the high-7s depending on asset and situation. By property class, Class A trophy assets in prime areas have transacted in the high-4% to low-5% cap range, Class B garden deals are generally mid-5%, and anything Class C or functionally obsolete would likely require high-5% to 6%+ caps to attract buyers (if they trade at all). Notably, Phoenix cap rates are still a bit lower than the national average – U.S. multifamily cap rates have expanded to roughly 6.0%–6.5% in 2025, versus Phoenix in the high-4s to mid-5s for most deals. This reflects that investors continue to bet on Phoenix’s superior growth prospects, accepting a tighter yield relative to many markets in the Midwest/Northeast.

Looking ahead, the capital markets appear to be nearing a turning point. The Federal Reserve’s rate hikes paused in 2024, and if interest rates ease over the next 1–2 years, financing costs for buyers will come down. That could spur more acquisition activity and put downward pressure on cap rates (i.e. pricing up) for Phoenix apartments, given the weight of capital that still views Phoenix as a long-term growth play. Additionally, some industry observers expect distressed sales to tick up in late 2025 if owners who have been hanging on (through loan extensions and lender workouts) finally run out of options. Any increase in distressed or forced sales could push volumes higher, although it may also briefly pressure values. On the flip side, the ongoing wave of deliveries will continue to supply institutional-grade product to the market, providing acquisition targets for investors who prefer newer assets. Overall, investors in Phoenix are being cautious but are actively watching for buying opportunities – especially for quality properties priced 20–30% below replacement cost or peak values. Those who can underwrite past the next few quarters of choppy fundamentals may find Phoenix one of the more attractive multifamily markets to invest in, at a relative discount, before the eventual rebound.

Economic and Demographic Tailwinds Supporting Demand

A key reason investors and developers remain bullish on Phoenix in the long run is its solid macroeconomic foundation. The metro anchors the Southwest as a high-growth region fueled by favorable demographics, in-migration, and a diversifying job base. Even as 2025’s housing supply issues play out, these underlying demand drivers continue to churn out new renters.

Population growth in Greater Phoenix is among the strongest in the nation. Maricopa County (Phoenix’s core county and the fourth-largest U.S. county) consistently ranks #1 or #2 for annual population gains. In the most recent data, the Phoenix metro added nearly 85,000 new residents in one year, the sixth-highest gain of any metro. This outpaced other Sun Belt hubs like Orlando, Atlanta, and Austin. A big portion of this growth comes from net migration – people moving in from other states. Phoenix’s proximity and cost advantages relative to California have made it a prime destination: Arizona saw over 33,000 net arrivals from California in a recent year, more than the next ten states combined. New residents are also flowing in from the Midwest and other regions, drawn by the desert climate (no harsh winters), affordable living, and job opportunities. This steady inflow of people (including many young working-age adults) enlarges the renter pool and underpins apartment demand. It’s also notable that Phoenix remains relatively affordable – both for housing and cost of living – compared to coastal metros. That affordability gap encourages some households who are priced out of California or Seattle to relocate to Arizona. The high cost of homeownership (given surging interest rates and home prices) is another factor keeping many new arrivals in the renter cohort for longer, boosting multifamily fundamentals.

Job growth and economic diversification in Phoenix further bolster housing demand. Total employment in the metro hit an all-time high of ~2.48 million in 2025. While job growth has moderated from the post-COVID surge, Phoenix is still growing its employment base at a faster pace than the U.S. average (about 1.7% vs 1.0% annually in recent years). Importantly, Phoenix’s economy is broad-based and no single sector dominates – a plus for stability. The market has notable strength in financial services, healthcare, trade/transportation, and professional/business services, among others. A few headwinds have emerged: interest-rate sensitive sectors (tech, finance) saw some layoffs or cutbacks, such as job losses at Carvana, Intel, and Silicon Valley Bank in 2023. Office-using employment has actually dipped slightly from late 2022 levels as some companies trimmed staff or embraced remote work. However, it’s worth noting that office-using industries contributed less than 5% of Phoenix’s job growth since 2020, down from ~30% of job gains pre-pandemic. In other words, Phoenix’s recent boom was driven mostly by other sectors (construction, logistics, healthcare, hospitality, etc.), insulating it somewhat from the tech/office slowdown. In fact, expansion continues in many areas: for example, Oregon-based Dutch Bros chose metro Phoenix (Tempe) for its new headquarters in 2024, citing the region’s deep talent pool and business-friendly climate.

Perhaps the biggest economic storyline is the rise of advanced industries in Phoenix, transforming it into a manufacturing and tech hub of the Southwest. The most high-profile project is Taiwan Semiconductor (TSMC)’s massive investment in North Phoenix – over $100 billion slated to develop multiple chip fabrication plants (fabs), R&D centers, and supplier facilities on a campus that will employ thousands. The first new fab started production in early 2025, and more are in the pipeline. This single project and its spin-offs (like Amkor’s $2B packaging facility and others) are creating a burgeoning semiconductor ecosystem. Likewise, electric vehicle (EV) and battery manufacturing is expanding around Phoenix – e.g. KORE Power (battery plant planned in Buckeye) and Lucid Motors (EV factory in Casa Grande) – though not without some setbacks such as Nikola halting production and selling its Coolidge plant. Even with a few speed bumps, Phoenix now boasts a robust cluster of high-tech manufacturing firms (semiconductors, aerospace/defense, electric vehicles, medical devices, etc.). These industries bring high-paying jobs and support a growing skilled workforce that often prefers to rent in the early years.

Meanwhile, logistics and distribution remain a cornerstone of the regional economy. Phoenix’s strategic location with access to Southern California ports (via I-10 and rail) and proximity to the Mexico border has made it a distribution node for the entire Southwest. E-commerce and retail giants have gobbled up warehouse space: Amazon alone signed leases for three mega-centers (each 1+ million SF) in the West Valley in 2024. This industrial boom brings construction and warehouse jobs and draws more blue-collar residents into the area. Phoenix’s infrastructure can handle growth too – an extensive freeway grid, relatively uncongested commutes, and fewer natural disaster risks (compared to, say, coastal hurricanes or California quakes) all make it an attractive environment for businesses and families. Additionally, the presence of large higher-education institutions like Arizona State University (ASU) ensures a steady pipeline of educated young adults entering the workforce. ASU’s main campus in Tempe alone has ~57,000 students, and its reputation for innovation has led many companies to partner with the university, keeping more graduates in the local area.

All these macro factors translate into steady housing demand. Simply put, people and jobs continue to flow into Phoenix. This doesn’t fully negate the current oversupply issues, but it provides confidence that Phoenix can grow into its new inventory. Indeed, CoStar notes that the underlying drivers for Phoenix’s apartment market – strong demographics, a diversifying economy, and relative affordability – remain firmly in place, positioning the metro for eventual recovery once the supply glut is absorbed. Long-term investors recognize that Phoenix’s rent growth and occupancy will bounce back once the market rebalances, thanks to these enduring fundamentals.

Phoenix vs. U.S. Multifamily: A Divergent Short-Term Story

It’s useful to put Phoenix’s performance in a national context. The multifamily market nationally began recovering sooner and more smoothly than Phoenix’s. U.S. apartment demand rebounded in late 2024 and into 2025, enabling absorption to overtake new supply in many cities. As a result, the national vacancy rate inflected downward, falling from ~8.5% in 2024 to about 8.2% by Q3 2025. CoStar projects U.S. vacancy will dip below 8% by the end of 2025 as construction slows and renter demand stays resilient. In Phoenix, by contrast, vacancy kept rising through 2024 into 2025, reaching ~12% – the highest level among major markets except a few extreme cases (Austin, for example, briefly exceeded 15% vacancy in 2024). Phoenix’s vacancy is roughly 4 percentage points higher than the U.S. average now. This gap emerged because Phoenix added supply at one of the fastest rates in the country (5–6% of inventory annually during 2022–2024), whereas national supply growth was more moderate and concentrated mostly in the Sun Belt and Texas. In effect, Phoenix overshot on construction relative to current demand, while many other markets remained more balanced. It joins a handful of Sun Belt metros (Austin, San Antonio, Las Vegas, etc.) that are lagging the national recovery due to localized oversupply.

Rent growth shows a similar divergence. National apartment rents are rising modestly again – the U.S. saw about +0.5% to +1.0% annual rent growth heading into late 2025, and forecasts call for gradual improvement as vacancies ease. By contrast, Phoenix rents are still declining year-over-year (~-2% to -3% through Q3). Among the 50 largest metros, Phoenix is one of only a few posting negative rent growth in 2025, placing it near the bottom of the rankings. Even formerly hot markets like Tampa and Atlanta have seen rent growth turn positive again in 2025, whereas Phoenix and Austin remain in negative territory. The upside is that Phoenix’s rent declines should abate as vacancy tops out – current projections suggest rent growth will turn positive by 2026–2027 in Phoenix (albeit at low single-digit rates initially). National rent growth is also expected to stay modest, so Phoenix could start to catch up once its supply overhang lessens. In the long run, Phoenix still has above-average rent growth potential due to its population and income growth trends. But in the near term, the market’s performance is clearly underperforming national benchmarks.

On the investment side, Phoenix’s transaction slowdown and pricing corrections are part of a broader national trend since 2022. Virtually all major markets saw apartment sales volume plummet in 2023 as interest rates soared. Phoenix’s ~75% drop in sales volume from the 2021 peak to 2023 (from ~$18–19B in 2021-2022 down to ~$4–5B annualized) mirrors the national decline. Cap rates rose everywhere, and values especially for older value-add properties fell 15–30% across many Sun Belt markets. In that sense, Phoenix is not an outlier; it’s simply at the sharper end of the adjustment because its 2021–2022 boom was so pronounced. One noteworthy difference is that Phoenix’s Class A cap rates have stayed relatively lower (sub-5%) compared to many markets, reflecting continued confidence in its growth story. Nationally, Class A caps in 2025 are often in the mid-5% to 6% range in markets like Denver, Dallas, etc. Phoenix’s ability to attract buyers even now for top assets (as evidenced by record per-unit prices in Scottsdale) speaks to its perceived long-term upside.

Bottom line: Phoenix’s short-term metrics (vacancy, rent growth) are lagging the U.S. average in 2025, but this is largely a supply-driven issue. The national apartment market didn’t face quite the same surge of deliveries, so it’s normalizing faster. Investors weighing Phoenix vs. other markets will note this underperformance, but many see it as cyclical. As excess supply gets absorbed and construction pulls back, Phoenix should gradually realign with national performance. In a few years, Phoenix may once again outpace the U.S. in rent growth given its demographic momentum. Thus, the current divergence is likely temporary – an opportunity for contrarian investors to buy in Phoenix at a relative value, with the expectation of riding the recovery as the market catches up to national trends.

Development and Design Trends: Evolving with the Market

Beyond the numbers, the Phoenix development landscape itself is shifting in response to market conditions and urbanization trends. The boom of the early 2020s brought not just more apartments, but also new types of projects and design philosophies to the Valley of the Sun. Developers and architects are tailoring projects to different submarkets – from vertical urban communities to sprawling suburban rentals – while incorporating features suited for Phoenix’s climate and renter preferences.

One notable trend is the emergence of urban high-rise and mid-rise communities in a metro long dominated by two- and three-story garden apartments. Downtown Phoenix and downtown Tempe have seen a construction wave of luxury mid-rise and high-rise buildings aimed at affluent renters. For example, in 2025 two high-rise towers opened in Downtown’s Roosevelt Row Arts District – “Rosie” (370 units) and “Saiya” (389 units) – adding modern sky-rise living options downtown. An additional 1,900 units are underway in the Roosevelt Row area, most of them luxury projects in mid- or high-rise format targeting the top of the renter pool. This is a departure from a decade ago, when Phoenix’s skyline had relatively few residential towers. Now, young professionals and empty-nesters can find upscale urban apartments with walkable access to restaurants, culture, and light rail. Developers are betting on Phoenix’s continued evolution into a 24/7 city, and city officials have encouraged higher-density infill development in these core areas.

At the same time, the suburbs remain a hotbed of construction, but even here there’s innovation. The Phoenix metro has arguably become the Build-to-Rent (BTR) capital of America – leading the nation in new single-family rental community development. Build-to-rent projects are usually horizontal communities of single-family homes or townhomes built for rent (often with shared amenities and professional management, functioning like a hybrid of apartments and a subdivision). In Phoenix, BTR has exploded since 2018, and especially in the West Valley. Around 30% of all new multifamily units delivered in the West Valley since 2020 have been BTR homes – only slightly behind traditional garden apartments, which account for about one-third. These include communities of single-story casitas, duplexes, or small lot homes that offer private yards and garages, catering to families or remote workers who want more space. The Phoenix market’s ample land and population growth make it ideal for BTR, and renters have embraced the concept. BTR provides an option between renting a unit in a large apartment complex and owning a home; it’s attractive to those who want a detached home lifestyle (no neighbors above/below, a backyard for pets) but either cannot afford to buy or prefer the flexibility of renting. With Phoenix’s surging home prices and interest rates, this segment has only gained popularity. Investors too are bullish on BTR in Phoenix – several national builders and institutional funds have poured into Phoenix’s BTR space, seeing it as a high-demand asset class. This “build-to-rent Phoenix” boom has been so pronounced that Phoenix ranks #1 for BTR units built over the last five years (a 309% increase in BTR inventory).

Traditional garden-style apartments haven’t gone away; they’re still the main format in many areas, but they’ve grown in scale. Massive garden communities (300+ units) with resort-style pools, dog parks, and co-working spaces popped up across suburbia. The fast-growing west-side suburbs – areas like Goodyear, Avondale, Peoria – absorbed a huge chunk of these garden and BTR projects. Since 2020, developers added 23,000 units in the combined North & South West Valley submarkets, fundamentally reshaping those communities. The sheer volume has created challenges (slower lease-ups, more concessions, as noted earlier), but it also means renters in suburban Phoenix have more choices than ever before. Notably, some master-planned communities now include a rental component from inception. The suburban spread of apartments also follows job growth – e.g. near new chip fabs or logistics hubs, you’ll often find new apartments to house those workers.

In the East Valley and more built-out parts of town, developers contend with higher land prices and stricter zoning, which limits overbuilding. Submarkets like Chandler, Gilbert, and Scottsdale have comparatively fewer large parcels, and entitlement processes can be lengthier. Thus, new development there tends to be more selective – often infill on smaller sites, sometimes higher-density or mixed-use. For example, Scottsdale has seen older shopping centers redeveloped into luxury apartments (with architecture blending into upscale surroundings). The result is that these areas didn’t get as oversupplied, and projects that did get built often had to differentiate themselves with boutique design or higher-end finishes to justify the land cost.

Architecturally, many Phoenix projects are incorporating features to handle the desert climate and appeal to renters’ desire for sustainability. Developers are using desert-adapted design strategies: e.g. buildings with deep overhangs, shade structures, and improved insulation to combat the intense sun; high-efficiency HVAC systems and smart thermostats to reduce cooling costs; xeriscaping (drought-tolerant landscaping) to conserve water, given Arizona’s arid environment. Community amenities also reflect outdoor living – expect to see misting systems in common areas, lots of covered patios and ramadas, and even air-conditioned dog runs or mail rooms to beat the heat. Some new mid-rise projects in Phoenix are using lighter-colored façades and reflective roofing to lower heat absorption (critical in a city that can hit 110°F+ in summer). Another trend is adding work-from-home friendly spaces (business centers, private work pods) recognizing many residents now split time at home offices. While these features are not unique to Phoenix, they take on added importance in a climate and post-COVID context like Phoenix’s.

Overall, Phoenix’s development scene is bifurcated: urban versus suburban, vertical versus horizontal. In the central areas, it’s about going taller, denser, and more upscale to lure renters from Class A communities in other big cities. In the fringes, it’s about offering space and home-like features to draw renters who might otherwise buy starter homes. This diversified approach to design and product type is likely to continue. As the market stabilizes, Phoenix’s builders will focus on projects that fill specific niches – whether it’s luxury high-rises in Tempe, or sustainable single-family rentals in Buckeye. The multifamily development outlook (Phoenix 2025–2027) is thus characterized by cautious planning: developers will be more careful to match product with proven demand. We expect a pause on speculative building in oversupplied segments, but continued innovation in design to maintain competitiveness. For renters, that means more options tailored to different lifestyles, and for investors, it means new opportunities in emerging product types like BTR and mixed-use urban projects as Phoenix’s real estate market matures.

Outlook and Opportunities for the Next 12–24 Months

Phoenix’s multifamily market is facing a challenging present but a promising future. The consensus among analysts is that 2025 will remain a tough year – vacancy likely hovering in double digits and rents struggling to grow – but that 2026–2027 should mark the start of a recovery as supply pressures ease. Given this trajectory, what should investors and developers watch over the next one to two years?

1. Peaking Supply and Leasing of New Units: A critical indicator will be how quickly the market can absorb the remaining new supply. Over 20,000 units are in lease-up or nearing completion as we enter 2026. The pace of absorption on these projects (leasing velocity) will determine when vacancy finally peaks and starts to decline. Signs to watch: a slowdown in concession growth, and stabilized occupancy rates improving in late-lease-up properties. CoStar’s analysis suggests Phoenix’s overall vacancy will stay elevated through most of 2025 and only begin a clear downward trend in 2026 as construction deliveries abate. Indeed, developers have already cut new starts dramatically – a nearly 80% drop in permits over the past two years – which means the pipeline beyond 2025 is shrinking. By 2027, very few new projects will be hitting the market, allowing demand to catch up. Investors should monitor quarterly absorption figures and the construction pipeline closely; a faster-than-expected lease-up of current projects or significant cancellations of planned projects could accelerate the timeline of recovery.

2. Rental Rate Inflection and Concessions: On the rental revenue side, rent growth is expected to remain negative or flat through 2025. However, the worst of the rent declines may be in the past, and owners will be looking for the inflection point when rents stabilize and turn positive again. Pay attention to concession trends: a pullback in concessions (e.g. reducing free rent offers from 8 weeks to 4 weeks on new leases) will be an early signal that the market is tightening. Property managers predict it could take until late 2026 for concessions to substantially burn off in Phoenix. Thus, effective rents might not rise much until then. For developers underwriting new deals or lease-ups, it’s prudent to assume another year of heavy concessions. For existing owners, budgeting for flat to slight rent decreases in 2025 is wise, with potential for modest growth (1–3%) in 2026 if occupancy improves. The multifamily development outlook in Phoenix will remain cautious until rent growth clearly resumes – few new projects will pencil if rents are still declining. That said, as soon as landlords regain pricing power, we could see a rapid sentiment shift. Watch mid-2026 closely: if positive rent growth returns by then (as current forecasts imply), it will boost investor confidence and asset values.

3. Interest Rates and Capital Availability: Macro financial conditions will heavily influence Phoenix’s investment market. The spike in interest rates was the primary factor that froze sales in 2022–2023. If the Fed holds rates steady or cuts rates in 2025, borrowing costs could gradually come down. Lower financing rates would improve buyer yields and likely increase transaction activity – especially for Phoenix, which many capital sources have on their radar for re-entry. Cap rates in Phoenix might compress slightly with any rate relief, given the weight of capital looking for growth markets. Conversely, if inflation surprises and rates rise further, cap rates could inch up and extend the lull in sales. Investor sentiment is a softer factor but important: many institutional investors are under-allocated to multifamily now and could ramp up acquisitions if they sense the bottom is in. Phoenix, with its strong demographics, will be a prime target when the capital spigot opens again. Already, we saw an uptick in volume in 2024–2025 . Look for more bidders on marketed deals in 2026 as a sign that capital is returning.

4. Distress and Value-Add Plays: Thus far, true distress in Phoenix multifamily has been limited – lenders and owners have mostly extended loans, and few foreclosures have hit the market. However, late 2025 through 2026 could reveal more troubled assets. Properties bought at the 2021 peak with short-term debt are most at risk. If interest rate caps expire or loans come due, some owners may be unable to refinance without injecting cash. We may see an increase in maturity defaults or note sales. For opportunistic investors, Phoenix could present some distressed acquisition opportunities (loan purchases, recapitalizations, etc.) in the next 12–24 months. Value-add deals also become attractive at repriced values – a 2000s vintage property that was $300k/unit is now maybe $200k/unit; buying at the lower basis and renovating could yield strong long-term returns once the market recovers. Astute investors will be cherry-picking assets in good locations that are temporarily underperforming (due to the rent slump) but can benefit from light improvements and the eventual upswing. Developers, on the other hand, might shift toward adaptive reuse or redevelopment plays (e.g., repositioning older office or retail properties into apartments) which can be viable if ground-up construction is too risky in the short run. The city of Phoenix is exploring conversions of some underused buildings into residential – any policy incentives here could create opportunities and help absorb space (though office-to-resi conversions are challenging, and CoStar notes even converting all vacant U.S. offices would only add a few basis points of housing inventory).

5. Long-Term Fundamentals Reasserting: Finally, keep an eye on the bigger picture trends that make Phoenix appealing. Population inflows are likely to continue, and even potentially accelerate if remote work drives more Californians to seek out Phoenix’s lower costs. The state’s business-friendly stance and investments like TSMC will keep generating jobs. These factors mean housing demand will grow – the question is just timing relative to supply. By 2027, if vacancy is trending down toward, say, 7–8% (closer to the national norm) and rent growth has resumed, Phoenix could re-enter an expansion phase. Developers who pressed pause will restart projects (likely focusing on the most undersupplied niches). Investors and developers should watch for inflection points: vacancy dropping below 10%, rent growth turning positive, job growth holding up, etc. Those will be signals that Phoenix is moving from the hyper-supply phase into the early recovery phase of the real estate cycle.

In conclusion, Phoenix’s multifamily market in late 2025 presents a mix of short-term challenges and long-term prospects. Elevated vacancies and generous concessions will persist into the coming year, testing owners’ asset management skills. However, the slowdown in construction and the metro’s enduring population and employment growth lay the groundwork for improvement by 2026–2027. Investors and developers who navigate this period with discipline – choosing strong locations, keeping debt manageable, and perhaps capitalizing on strategic acquisitions – could be well-positioned for the next upswing. Phoenix remains a fundamentally desirable market, and as the current oversupply is absorbed, its multifamily development outlook should brighten. The key is patience and careful strategy: in the words of one local expert, Phoenix is “down, but not out.” The smart money will be watching for the pivot point when the Valley of the Sun’s apartment sector shifts from correction back to growth.

Sources: 

• CoStar Phoenix Multifamily Market Report Q3 2025;

• CoStar U.S. National Multifamily Report Q3 2025;

• Phoenix CoStar report – Rent & Concessions;

• Sales and cap rates data from CoStar;

• Economic and demographic data from CoStar and AZ industry news.

A luxury high-rise project (AVE Phoenix Sky) in downtown Phoenix, with modern finishes and vertical