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Q3 2022 Multifamily Real Estate Report: Phoenix, AZ

Q3 2022 Multifamily Real Estate Report: Phoenix, AZ


After two-quarters of extraordinary growth, the Phoenix multifamily market has started to cool down. Vacancies were up significantly this quarter, and average asking rates showed their first decline in nearly a decade. 

Additionally, sales activity withdrew slightly this quarter, although transaction prices were higher than in the previous quarter, and cap rates continued to grow. Like most other cities, some of this slowdown can be attributed to rising interest rates. Fortunately, construction on new units is proceeding as planned, with high numbers for multifamily permitting. 

On the other hand, Phoenix's economy is performing well, with low unemployment and employment rapidly expanding. Phoenix added over 88,000 individual workers to the payroll, with significant growth rates in the healthcare and tech industries. General Area Overview & Demographics

Phoenix is the capital and largest city in Arizona and has a population of 1.6 million as of 2023.

The median age is 34, and the median household income is $60,914. Phoenix has historically been a good city for investment in real estate because it has relatively few construction and development constraints. 

Phoenix occupies a hot desert climate characterized by long, dry summers and short, mild winters. Daily temperatures in the summer routinely reach over 100 degrees F, and the city receives very little rainfall throughout the year. 

Phoenix boasts a strong economy with a significant presence in the real estate, financial, manufacturing, and healthcare sectors. Phoenix is home to several Fortune 500 companies, including PetSmart, Avnet, and waste removal company Republic Services. 

Summary of Phoenix Multifamily Real Estate Performance in Q3 2022

Phoenix had a quarter marked by high vacancy rates and the first decrease in average asking rates over ten years. Vacancy rates for multifamily units in Phoenix rose 40 basis points, reaching 5.8% by the end of Q3 2022. Vacancies have increased 180 basis points year-over-year, with only two submarkets posting vacancy decreases this quarter. 

Vacancies for Class A properties specifically rose to 6.3%, which is nearly 190 basis points higher than this time last year. Fortunately, experts predict that vacancies should stay steady as we enter the first few months of 2023. 

Phoenix showed tremendous growth over Q1 and Q2 2022, but high-interest rates and rental rates plateauing caused a slowdown in Q3 2022. Despite the slowed activity, cap rates increased from 3.5% in Q2 2022 to 4.25% in Q3 2022—over 70 basis points. 

What Are Multifamily Rents Like in Phoenix?

Multifamily rents in Arizona marked their first decrease in nearly a decade, moving from $1,660 in Q2 2022 to $1,652 in Q3 2022. This decrease comes after a 5% annual increase over the past year. 

Although average multifamily rents have decreased, some submarkets still showed double-digit rent growth. For example, the downtown submarket posted nearly 15% rental growth in Q3 2022. Average growth rates in many suburban submarkets surpassed 5.5%. 

As employment increases over the next few months, multifamily landlords can expect rental increases as demand for multifamily units grows in 2023. 

Purchase & Leasing Activity

Similar to rental rates, multifamily purchasing activity in Phoenix slowed down this quarter after solid activity over the previous two quarters. Total transactions fell nearly 40% in Q3 2022 from Q2 2022. Overall, year-to-date sales velocity is 14% lower than at the same time last year. 

Most notably, sales activity for Class C properties faltered. Class C properties accounted for about half of the total sales volume in the year's first half but fell to 35% this quarter. Lower demand for Class C properties reflects renters' desires for high-quality accommodations. 

Unit prices fell slightly this quarter, with a median sales price of $274,000 per unit. However, the YTD median price in Q3 2022 was $295,000—34% higher than YTD median prices in 2021. Average cap rates were 4.25%, with some markets trading over 5%. 

Notable Multifamily Real Estate Deals in Phoenix in Q3 2022

Below is a table showing some of the most notable transactions in Phoenix this quarter. 


Sales Price


Price per Unit

2020 W Glendale Ave




909 W Colter St.




601 W Rio Salado Pkwy




1811 E Apache Blvd.




975 S Royal Palm Rd.




New Multifamily Real Estate Development Activity in Phoenix in Q3 2022

Multifamily development in Phoenix boasted strong performance this quarter, with nearly 4,000 units added in Q3 2022. This addition brings the yearly new units to 9,700—almost 20% more than the same time in 2021. 

The end of Q3 2022 sees nearly 31,000 units in the construction pipeline. Additionally, multifamily permitting was up 18% from last year at the end of Q3 2022. 

Phoenix has historically had a strong construction sector, which can lead to overbuilding in times of economic prosperity. This tendency to overbuild partially explains why Phoenix has higher vacancy rates than other similar metro areas.  

Market Forecast for Phoenix’s Multifamily Real Estate Market in 2023

Employment is projected to continue proliferating, so renter demand is expected to increase into 2023 and push higher rental rates. In the long term, Intel’s and Tawain’s semiconductor plants will create thousands of new jobs, further accelerating growth and rental demand. 

Although the sales market might experience a few setbacks due to high-interest rates, high cap rates and an active construction scene will drive sales increases. Rental rate growth will be determined by whether or not absorption is positive or negative in the first few months of 2023. 

Takeaways for Multifamily Real Estate Investors

Despite the slowdown this quarter, the Phoenix multifamily market is in good shape for investors. High cap rates and growing employment signal increased rental demand in the next few quarters. Rental asking rates will likely increase, assuming overall absorption is positive in the next few quarters.

Landlords can take advantage of future growth by acquiring high-quality Class A residences or performing quality updates on Class B and C properties. Landlords should also focus on suburban markets to avoid the brunt of rising vacancy rates. 

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