Phoenix has experienced a surge in population due to its favorable climate, affordable cost of living and thriving job market. Since 2012, Phoenix has seen an average of 1.6 percent in population growth per year versus an annual U.S. average of 0.6 percent.  The city’s allure is particularly strong among young professionals drawn to its continued job growth and retirees seeking sunny skies.  This rising demand has translated into increased rental rates and occupancy levels over time, making the Phoenix market highly appealing to investors seeking stable and profitable ventures.

To meet the rising demand for multifamily housing, developers have ramped up construction activities in Phoenix. There are 40,459 new construction projects planned for 50-plus-unit construction. The market has also witnessed an escalation in the number of new projects — 28,841, according to Yardi). These include luxury apartments, mixed-use developments and affordable housing options. These projects not only cater to professionals, but target Millennials and members of Generation Z, who are increasingly gravitating toward rental properties. However, ABI Multifamily outlook sees a substantial drop-off in completions starting at the end of 2024 through 2025 as a result of increased pricing in materials, labor issues and market conditions.  

Phoenix’s robust job market has been a driving force behind the flourishing multifamily market. The city has attracted major companies from various industries, including technology, finance, healthcare and manufacturing. This influx of jobs has contributed to a strong economy, resulting in increased disposable income and a higher ability to afford rental properties. The continued growth of the job market is expected to sustain the demand for multifamily properties in the foreseeable future. Companies TSMC are fueling the need for housing as the demand for workforce increases. In fact, Arizona’s employment growth rate grew by 1.9 percent in November (year over year). 

Phoenix’s multifamily market has caught the attention of national and international investors seeking lucrative opportunities. The market’s high demand, stable rental income and strong capital appreciation potential make it an attractive investment option. Additionally, Phoenix’s favorable tax environment, business-friendly policies, as well as a supportive regulatory framework further enhance its appeal to investors. The state instituted a new flat income tax of 2.5 percent last year due to a previous budget surplus. This has attracted professionals from places like California that have high income tax rates.

While the Phoenix multifamily market is witnessing significant growth, there are challenges that need to be addressed. Rising construction costs and a shortage of skilled labor have the potential to limit supply and affect affordability. Competition amongst developers and investors in prime locations may also exert pressure on rental rates and occupancy levels that have seen a drop in the past year. However, these challenges also present unique opportunities for innovative solutions and niche market segments that cater to specific housing demands. 

Phoenix will be challenged by the same factors affecting all commercial real estate nationally, including higher interest rates, higher wage and materials costs, the loss of most of the banking sector lending and the overall political instability a national election year brings. However, the region’s strong population growth, coupled with strong job creation, will outpace the national negative economic factors. We are already seeing rents and occupancy stabilizing. 

The future of Phoenix’s multifamily market looks promising. Population growth is projected to continue, and the job market is expected to expand further. These factors, alongside the city’s diverse economy and favorable investment climate, position Phoenix as a resilient and thriving multifamily market. However, monitoring the balance between supply and demand, as well as staying attuned to evolving preferences and market dynamics, will be critical for sustained success.