Multifamily Developers Transform Downtown Phoenix Skyline | Living In Phoenix Arizona
MULTIFAMILY DEVELOPERS TRANSFORM DOWNTOWN PHOENIX SKYLINE
LIVING IN PHOENIX, ARIZONA
Multifamily Developers Transform Downtown Phoenix Skyline
More Than 3,600 Units Built Downtown Since 2019, With Thousands More Coming
The Phoenix apartment market is navigating a multidecade-high wave of construction activity, and at the epicenter of this supply boom is downtown Phoenix.
Expansions by higher education institutions, growth in the bioscience industry and a new offering of restaurants, bars and shopping options have reshaped the downtown into a true live/work/play neighborhood. The area is now a preferred destination among young professionals and student renters, driving strong demand for housing.
Multifamily developers have ramped up construction to meet this growing need, adding thousands of new luxury rentals to the area. In the square mile encompassing the metropolitan area’s center, 13 apartment buildings with 100 units or more have been completed since 2019, adding 3,600 new units and doubling existing inventory.
Though underlying renter demand has been healthy, the historic supply injection has overwhelmed leasing activity, causing property performance to falter.
Among apartments with 100 or more units, stabilized vacancy climbed from 4.9% in the fourth quarter of 2019 to 12.4% in the second quarter of 2024. That 750-basis-point increase well outpaces the 230-basis-point expansion seen for the overall Phoenix market during that time. CoStar considers a property stabilized once it has reached 90% occupancy or is 18 months removed from completion.
Additionally, annual rent growth turned negative in late 2020 and has been in the red ever since. Average asking rents declined 3.5% year-over-year in the second quarter of 2024, compared to a 2.3% loss for the Valley as a whole.
Amid increased competition from new supply, operators have turned to discounts to attract tenants. Prospective renters can typically find up to eight weeks of free rent at newly built, Class A apartments, and some may offer concessions at the time of renewal to shore up the backdoor.
With more than 3,000 units currently underway, supply-side pressure could linger in downtown Phoenix over the midterm.
Four apartment properties over 25 stories tall are under construction, including Central Station, a large mixed-use development featuring a 33-story residential tower with 362 nonstudent units. The project hosted a topping-out ceremony in May and plans to open in 2025.
Moving forward, the long-term drivers supporting downtown’s growth remain in place. Arizona State University announced plans for a new medical school last year, and the Phoenix Bioscience Core has plans for up to 6 million square feet of research, academic and clinical facilities at full build-out.
Nevertheless, the substantial supply pipeline will likely remain a meaningful headwind for downtown Phoenix for the next few years, indicating a recovery in property performance could take longer to materialize here than in the broader market. – more at costar.com
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Natan Jacobs, Vestis Group
Call: 602-281-6202
Email: Info@Vestis-Group.com
