The Phoenix multifamily market is positioned to register outsized rent growth again, according to a report from Marcus & Millichap.

Several indicators showcase the demand tailwinds in Phoenix. The market is projected to add nearly 50,000 households this year, growing at a pace more than twice as fast as the national average. Robust in-migration is the driving force, with many relocating from colder weather climates or more expensive metros along the coasts. At the same time, the local economy is welcoming. The job total surpassed the pre-recession crest by the third quarter of 2021, yet the unemployment rate held above 5 percent, keeping job availability elevated and leaving room for further gains.

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This myriad of demand drivers is catalyzing remarkable rent growth amid very tight vacancy. Phoenix was one of only three major U.S. metros to record an annual rent increase exceeding 20 percent in 2021 and will remain near the top of the pack this year. Nonetheless, completions in 2022 will practically double the previous annual peak across the past two decades, putting some upward pressure on vacancy. The additions are necessary, however, as availability entered 2022 more than 100 basis points below the next lowest year-end rate going back to the turn of the century.

Price appreciation and cap rate compression a byproduct of competition. Many investors across the country and overseas are aware of the stellar performance in Phoenix. An enlarged buyer pool with an appetite for assets throughout the Valley has translated to robust price appreciation. In 2021, the average sale price jumped to a level more than twice as high as the same metric in 2016. Over that same span, the mean cap rate fell 120 basis points to 4.9 percent. Buyers willing to pay steeper entry-costs for apartment buildings in areas that appeal to young adults focus on Tempe, Old Town Scottsdale and Downtown Phoenix. First-year returns in the upper-3 percent range are increasingly common in these submarkets, though Class C cap rates can occasionally exceed 5 percent. Investors seeking higher yields scour the far east and west sides of the Valley where household creation is strong.