Northmarq: Tucson’s Elevated Absorption Totals Offset the Bulk of the New Units Coming Online
(February 25, 2025) — Northmarq is reporting that while some conditions have softened in the Tucson multifamily market, rents and vacancies have remained within a tight range in recent periods. Developers continued to deliver units rapidly in 2024, but a decade-high absorption level has softened the competitive impact of new units entering the market. Net absorption in Tucson totaled more than 1,600 units in 2024, or about 85 percent of total completions. Since the beginning of 2023, the spike in construction has grown local inventory by 5 percent; during the same period, the vacancy rate has increased by just 90 basis points. Asking rents have held mostly steady during the same period.
Multifamily transaction volume in Tucson was light in the fourth quarter, though the number of sales closely tracked the volumes recorded in recent periods. Total sales in 2024 slightly outpaced levels from 2023, though both years were modest compared to historical averages. While the total number of transactions remains low, pricing on the sold properties has increased since 2023. The median price in 2024 was $146,200 per unit, up 17 percent from the previous year and down just 2 percent from peak levels recorded in 2022. This recent increase can be attributed to rising prices for Class B sales. The median price for middle-tier properties was $181,200 per unit in 2024, up significantly from historical levels. The Casas Adobes area led Tucson in activity, accounting for more than 40 percent of sales in 2024. Pricing in the submarket has risen by 35 percent since 2022.
Looking ahead
Multifamily property conditions in Tucson during the next 12 months will likely look similar to 2024. The market will continue to work through elevated supply levels, although the pace of deliveries slowed in the fourth quarter and should cool modestly in 2025 as well. Still, supply-side pressures should persist, and there is greater uncertainty on the demand side. The local economy has been expanding fairly steadily in recent periods, and further gains should support operations and absorption. The influx of new properties with popular amenities into the market should support higher average rents. Still, it will likely take a few more quarters of move-ins for conditions to stabilize.
While investment conditions have steadied since the volume of deals contracted significantly in 2023, it is unlikely that 2025 will bring a rebound in activity. Investors will likely want to see property operating fundamentals stabilize before returning to the market in significant numbers. The country’s evolving stance on immigration and deportations adds another layer of uncertainty to the Tucson market, which may cause investors to pause until greater clarity. Investors will continue to monitor lease-up activity among new properties and absorption at existing buildings. Traditionally, the local investment market has been fueled by activity in Class B and Class C assets. If these older vintages continue outperforming, investment activity could resume in the coming quarters.
Report Highlights:
- Operating conditions in the Tucson multifamily market remained relatively steady in the fourth quarter, with the vacancy rate holding unchanged and rents dipping slightly. The pace of deliveries cooled after elevated totals in the first nine months of the year.
- The vacancy rate in Tucson remained at 8.4 percent during the fourth quarter. In the 2024 area, vacancy trended higher by 20 basis points.
- Rents decreased during the fourth quarter, dipping 0.7 percent following modest growth in earlier periods. The average rent in Tucson ended 2024 at $1,178 per month, declining 0.8 percent for the year.
- Sales activity in the Tucson multifamily market was pretty consistent between 2023 and 2024, with a modest uptick recorded this past year. The median sale price 2024 was $146,200 per unit, while cap rates averaged between 5.5 percent and 6.5 percent.