— By Karl Abert and Bret Zinn of Kidder Mathews —
The Phoenix multifamily market is still digesting the effects of an unprecedented development cycle, while beginning to show early signs of stabilization. Although near-term operating fundamentals remain challenged, several forward-looking indicators suggest the market is gradually moving toward equilibrium as it enters 2026.
Vacancy increased to 12.6 percent in the fourth quarter, up 80 basis points year over year, according to Kidder Mathews research. This reflects the cumulative impact of elevated construction deliveries over the past several years.
Average asking rents declined 3 percent year over year to $1,529 per unit, underscoring the competitive leasing environment owners continue to face. These trends confirm that Phoenix remains in a tenant-favorable phase of the cycle, particularly in submarkets that experienced outsized levels of new supply.
Encouragingly, the development pipeline is contracting meaningfully. Units under construction declined nearly 30 percent year over year, while last year’s deliveries fell sharply compared to 2024. This slowdown represents a critical inflection point for the market. As new supply tapers, demand will have greater opportunity to absorb existing inventory, setting the stage for gradual improvement in occupancy and rent growth. While net absorption remained positive in the fourth quarter, it trailed historical averages, reinforcing that recovery is likely to be steady rather than immediate.
Investment activity tells a more nuanced story.
Average sale prices rose about 10 percent year over year to $251,699 per unit, a metric influenced largely by a disproportionate number of newly constructed Class A (or better) communities being brought to market by merchant builders. These high-quality, recently delivered assets naturally skew average per-unit values higher, despite softer operating fundamentals across much of the broader market. Cap rates compressed to 5.5 percent, down 40 basis points from 2024, signaling that well-capitalized buyers remain willing to accept lower near-term yields in exchange for long-term growth prospects in premier assets and locations.
The data in Kidder Mathews’ fourth-quarter report also highlights a bifurcated market. Newly delivered properties continue to face intense lease-up competition, while well-located, stabilized assets — particularly those offering renovation or operational upside — are attracting consistent investor interest. Average rents by unit type remain relatively affordable compared to other major Sun Belt metros, reinforcing Phoenix’s long-term demographic and employment-driven demand drivers.
Overall, the Phoenix multifamily market is in transition rather than decline. While elevated vacancy and rent softness persist in the near term, the sharp pullback in new construction and sustained capital interest suggest multifamily fundamentals are gradually moving closer to balance. For investors with disciplined underwriting and a longer-term perspective, the current environment may present attractive opportunities ahead of the next growth cycle.
— By Karl Abert, Senior Vice President, and Bret Zinn, Vice President, Kidder Mathews. This article was originally published in the January 2026 issue of Western Real Estate Business.