The apartment demand recovery that began in the latter half of 2020 has continued through the first half of 2021, but more than that, rent growth has resurfaced. In markets around the country, average effective rent gains are at levels not seen in a decade or more. One of those areas is Phoenix.

As always, all numbers will refer to conventional properties of at least 50 units.

New Supply and Net Absorption

New construction deliveries have ramped up in the first half of the year compared to the recent past. About 6,200 new units were introduced in the period, well beyond the roughly 4,500 and 4,000 units from the same portion of 2020 and 2019, respectively. 17 of the 26 ALN submarkets for Phoenix saw some quantity of new supply, but deliveries were most numerous in the Gilbert area – the location of around 1,400 new units.

As with new supply, apartment demand has increased substantially from recent years as well. More than 7,800 net units were absorbed through the first six months of the year. Not only was that almost the annual total from 2020, but the 7,800 units were well beyond the approximately 5,500 units from the same period in 2019. The Class A subset gained the most newly rented units, but the Class C space did well also. While each of the four price classes managed to outdo the pre-COVID numbers from 2019, it was these two classes specifically that outperformed by the largest margins. The net result of the new supply and net absorption dynamic was an average occupancy gain of 0.7% to just below 94% overall – a level higher than before the pandemic began.

Average Effective Rent and Lease Concessions

As already intimated, rent growth was the metric to markedly diverge from recent years. After a robust 5.5% gain from January through June of 2019, and a respectable 1.1% increase in that period last year given all that was occurring, average effective rent appreciated 11.5% in the first half of 2021. The average unit closed June leasing for $1,375 per month, almost $200 more per month than the average one year ago.

Declining lease concessions played a major role in the dramatic rent growth, but it should be mentioned that average asking rent rose by almost 11% through June. This indicates that operators have been more aggressive with rents this year in response to conditions on the ground across Greater Phoenix and is typically an encouraging sign.

As already mentioned, lease concessions played a role as well. Discount availability declined by more than 50% through the first half of the year and the area ended June with only 10% of conventional properties offering a new lease concession package. The average discount value also declined in the period, though not to the same extent. An almost 10% decline brought the average value to 2.5 weeks off an annual lease – only very slightly higher than the average from June 2019. Areas that continue to have elevated rates of concession availability relative to the market as a whole are the ASU area, and both the Downtown and West Phoenix submarkets.

Takeaways

The multifamily industry has experienced demand so far this year not seen in a generation, and as would be expected in such an environment, rent growth has soared. For a growth market like Phoenix, a high average occupancy despite increased new supply is another contributing factor to skyrocketing rents. Unlike some markets where the growth has been focused mostly in the Class A space, all but Class D were in double-digit territory at the midway point of the year. Because of this, continued appreciation at anything close to the trajectory seen so far this year is likely to have affordability ramifications for residents. The good news is the multifamily rebound has been a robust one, but the pace of rent growth bears monitoring over the coming months.