Elevated demand for apartments has consistently mitigated supply-driven pressure on vacancies since the construction boom kicked off in 2013. But more units are being absorbed than built by a considerable margin in 2018, compressing Phoenix's vacancy rate to an all-time low.
A tight apartment market has contributed to accelerating rent growth in recent quarters. Phoenix also has the rare distinction of a metro that can sustain robust rent gains while absorbing an inundation of new supply. The Valley's annual rent growth has consistently ranked among the best in the nation in the past four quarters.
Investors remain bullish on Phoenix's fundamentals in 2018 after record levels of investment in the past several years. This market is on pace to eclipse $5 billion in annual sales volume for the second consecutive year. Meanwhile, pricing has skyrocketed into uncharted territory and contributed to the compression of cap rates below 6%.
Phoenix’s strong in-migration and employment growth, key drivers of apartment demand at the top of the market, will need to sustain momentum to keep the apartment market stable in the near term. Fundamentals will face increasing supply-side pressure as more projects come on line—deliveries are expected to reach a cyclical high in 2019.
