TUCSON, ARIZONA -- Northmarq is reporting the Tucson multifamily market posted healthy levels of net absorption and a vacancy rate that approached an all-time low during the third quarter. These forces combined to fuel another sharp rise in rents, which advanced more than $50 per month during the third quarter and are up nearly $200 per month from one year ago. Renter demand for units is sparking the rent increases; the most recent period marked the fifth consecutive quarter of positive net absorption in the Tucson area. Developers are bringing new projects online to meet rising demand. Apartment construction is on pace to reach a 25-year high in 2021; even with this significant inventory growth, the vacancy rate is forecast to post a modest decline this year.
Improving property fundamentals have contributed to a healthy pace of transaction activity in the Tucson multifamily market for the past several years, and the investment market gained momentum during the third quarter. More properties traded at higher prices in the third quarter, as investors have become more aggressive, and competition for assets has intensified. While a few newer properties have changed hands in recent months, the bulk of the sales activity has been occurring in 1980s- and 1990s-vintage Class B properties. The median price in these types of properties has reached nearly $150,000 per unit, up from less than $90,000 per unit in 2019.
The Tucson multifamily market posted continued improvement during the third quarter. The vacancy rate fell even as developers continued to bring new units to the market. Fueled by tightening vacancy rates and continued renter demand, rents remained on a steep upward trajectory.- Vacancy dropped 30 basis points during the third quarter with the rate falling to 4.1 percent. Year over year, area vacancy is down 40 basis points, with a minor decline likely in the fourth quarter.
- Apartment rents in Tucson continued to surge during the third quarter, advancing 6.1 percent after an 8.5 percent spike in the second quarter. Rents have increased 21.5 percent year over year, ending the third quarter at $1,053 per month.
- The pace of multifamily property sales accelerated during the third quarter, spiking 20 percent from levels recorded in the second quarter. Prices are on the rise, with the median price reaching $97,300 per unit year to date, while cap rates have averaged approximately 5 percent.