Is Phoenix Back? I'm Not Sure That's the Right Question Yet.

There has been a lot of conversation lately about whether the Phoenix apartment market has finally turned the corner.

It is easy to understand why.

Tours seem steadier. Traffic feels more encouraging than it did before. After a couple of challenging years, demand appears to be showing up again. Across the Phoenix market, more than 4,000 apartment homes were absorbed during the second quarter, well ahead of last year's pace.

That is encouraging. I'm just not sure I would call it a full recovery yet.

Demand Is Returning, but Rents Have Not Followed

What we may be seeing is the beginning of two separate recoveries.

People are leasing again. More apartment homes are being absorbed, vacancy has improved to approximately 11%, and some of the pressure created by recent oversupply appears to be easing.

At the same time, average asking rents remain a little more than 2% below where they were last year.

Demand is improving, but pricing power has not fully returned. Those two things can be true at the same time, and they may not recover at the same pace.

Occupancy Still Feels Like Meaningful Progress

When rents remain flat or lower, it can be difficult to feel like the market is making progress.

I tend to look at it a little differently.

When a community begins leasing more consistently, even at a careful rate, it is rebuilding its occupancy and strengthening its foundation. That may not be the entire recovery, but it is an important part of it.

Occupancy may need to improve before confidence returns, and pricing may simply be the last piece to follow.

That is why I find the current market encouraging, even if it is not fully where we would like it to be.

The Supply Picture Is Changing Too

The slowing construction pipeline may be one of the more important parts of this story.

Phoenix has worked through a significant wave of new apartment deliveries. Now that pipeline is beginning to thin, with fewer new communities expected to enter the market.

If renter demand remains steady, reduced supply pressure could eventually create more room for rents to recover. There are still plenty of variables involved, so I see that as a possibility, not a promise.

Still, it is one of the more encouraging changes we have seen in some time.

What I'm Watching Next

For now, I'm paying attention to the space between improving leasing activity and softer rents.

Are communities holding onto the residents they already have? Are concessions becoming more targeted? Is stronger traffic turning into sustained occupancy? And will demand remain steady as fewer new apartment homes enter the market?

Those answers will probably tell us more than any single month of leasing activity.

So, is Phoenix back?

I'm not sure that is the right question yet. Phoenix may simply be healing, and that is still worth paying attention to.

I would love to hear what others are noticing. Is traffic improving faster than rents in your communities, and does this feel like the beginning of a real shift to you?

Melanie Prock
President | Pillar Communities