By Sean Colón
The Arizona real estate market is bracing for a transformative year in 2025, and realtors who stay ahead of the curve will find themselves in prime position to capitalize on emerging trends. Despite recent challenges from rising interest rates and an influx of new multifamily developments, strong renter demand is set to drive occupancy rates upward and fuel rent growth. This cyclical recovery presents a unique opportunity for investors and realtors alike.
Multifamily’s Continued Strength in Arizona
Multifamily housing remains the most favored asset class in commercial real estate. In 2025, the national multifamily vacancy rate is projected to settle at 4.9%, while average annual rent growth will reach 2.6%. Arizona, particularly Phoenix, is among the Sun Belt and Mountain region cities witnessing some of the most significant expansions in multifamily inventory—nearly 20% growth in just three years. While this surge in supply initially created downward pressure on rents, many of these markets are past their peak for new deliveries, leading to stabilizing occupancy rates.
The Turning Point: Market Stabilization in 2025
Realtors in Phoenix should note that while supply growth peaked in some cities in 2024, Phoenix, alongside Charlotte, Fort Lauderdale, Raleigh, Riverside, and San Antonio, will experience its supply peak in 2025. Despite this, multifamily market fundamentals are expected to improve significantly over the next few years. By mid-2025, multifamily construction starts will be 74% lower than their 2021 peak and 30% lower than pre-pandemic averages. This decline in new supply, combined with persistent renter demand, will reduce vacancy rates and drive above-average rent growth into 2026.
Why Renters Are Staying Put
One of the biggest drivers of continued renter demand is the widening gap between the cost of homeownership and renting. As of Q3 2024, newly originated mortgage payments are, on average, 35% higher than apartment rents. While this premium is expected to ease slightly in the coming years, it will remain high enough to keep renters in place. With nearly 80% of homeowners locked into mortgage rates below 5%, many will be reluctant to sell, keeping home prices elevated and maintaining strong rental demand.
Key Takeaways for Arizona Realtors
Phoenix’s multifamily market is stabilizing. After experiencing a supply surge, rent growth and occupancy rates are improving.
Demand remains strong. Many potential homebuyers are delaying purchases due to high mortgage rates and unaffordable home prices.
Multifamily investments are heating up. As construction slows, existing properties will see rising rents and lower vacancies.
Rental growth will outpace home price appreciation. Over the next five years, average multifamily rents are expected to grow 3.1% annually, exceeding the pre-pandemic average of 2.7%.
Looking Ahead
“Phoenix’s combination of job creation, population growth, and a shrinking construction pipeline makes it one of the most attractive places for real estate investment in 2025”
Realtors and investors should keep a close eye on Phoenix and other Sun Belt markets as multifamily fundamentals strengthen. While high-growth markets like Salt Lake City and Nashville will also see premium compression, Phoenix’s combination of job creation, population growth, and a shrinking construction pipeline makes it one of the most attractive places for real estate investment in 2025 and beyond.
For those in the Arizona real estate industry, understanding these market dynamics will be key to advising clients effectively and seizing investment opportunities as the market shifts. Now is the time to position yourself for success in this evolving landscape.
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