Phoenix Multifamily Market Faces a Reset as Oversupply and Falling Rents Test Investor Assumptions

Written by:

Steve Marcinuk

Date:

28 Apr 2026

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Vacancy rates above 12%, negative rent growth in several submarkets, and a widening gap between buyer and seller expectations are forcing a recalibration across the Phoenix multifamily market. After years of aggressive building and rising rents, the correction now underway is testing assumptions that guided investment decisions as recently as 2023. But for operators working at the property level, the reality on the ground is more varied than the top-line numbers suggest – and the path forward depends heavily on how well investors and owners adjust their expectations.

Patrick O’Sullivan, Broker/Owner of get MULTIfamily, has spent nearly two decades working in Phoenix’s small to mid-size multifamily segment. His firm handles both brokerage and property management, giving him a view that spans acquisition decisions, leasing conditions, and day-to-day operational pressures.

Where the Pain Is Concentrated

Not all Phoenix submarkets are under the same pressure. Tempe stands out as one of the more difficult areas right now, where concentrated new supply has collided with softer demand. “They built a lot, and the demand is low,” O’Sullivan says. “That combination has put a lot of pressure on rents.”

Elsewhere, the picture is more manageable. Class B and C properties across the broader Phoenix area are still leasing, provided they are priced correctly. The benchmark O’Sullivan watches most closely is time on market. Units are generally leasing within 30 to 60 days, he says, and anything sitting longer than 60 days typically signals a pricing problem rather than a demand one.

Concessions have become standard. Free first month offers, reduced move-in costs, and even Amazon gift cards are all being used to fill units. The approach is deliberately flexible. O’Sullivan’s team tailors the structure to what each prospective tenant needs – sometimes reducing upfront costs while holding rent steady, other times lowering rent for tenants who can pay full move-in costs. “Not every tenant is the same,” he says.

The Expectation Gap

Beyond leasing, one of the more persistent challenges O’Sullivan faces is managing owner expectations around current rent levels. Many landlords are still anchored to what their units were fetching a year or two ago. “Your tenant’s leaving at $1,300. We’re probably going to get $1,000 or $1,100,” he describes telling clients. “Versus the typical mentality of, well, we should be able to get more.”

The same dynamic is slowing transaction volume on the sales side. Buyers are targeting deals at around a seven-percent capitalization rate – a measure of expected return relative to purchase price. Sellers are holding out for five and a half to six percent, which implies a higher price. “There’s that separation,” O’Sullivan says.

Financing conditions are adding friction, particularly for properties with five or more units. Smaller two-to-four unit properties still qualify for residential financing, which keeps a broader buyer pool in play. Larger assets face tougher scrutiny. Investors evaluating those deals are asking whether a large down payment will generate an adequate return – and in many cases, the answer right now is no.

A Common Underwriting Mistake

One of O’Sullivan’s sharpest observations concerns how some buyers evaluate properties with long-term tenants paying above-market rents. Those deals can look attractive on paper, but the picture changes quickly if tenants leave and units must be re-leased at today’s lower rates.

O’Sullivan explicitly recommends modeling for tenant turnover. If average tenancy runs around three years, roughly a third of units could turn over within the first year of ownership – resetting at current market rents. By year two, another third may follow. Buyers who fail to account for that decline in rental income risk overestimating their returns from day one. “Many times people send me a property and say, ‘What do you think of this?’ And I’ll say, those are really good rents. But if you lose a tenant, this is going to be your likely rent, and they don’t underwrite for that,” he explains.

For investors willing to do that work, O’Sullivan sees selective opportunity. He is advising buyers to target deals around the seven-cap range, plan for down payments closer to 40% given current lending conditions, and stress-test their assumptions against market rents rather than in-place rents.

Operational Efficiency as a Competitive Edge

Leasing speed has become a key differentiator in a market with elevated vacancy, and O’Sullivan has been investing in systems designed to reduce the time it takes to fill units. His team uses a combination of AI-driven lead follow-up and dedicated human outreach to stay ahead of inquiries. “We have people dedicated just for that – all they do is follow up with leads,” he says. “That’s how we’re able to beat our time on market.”

The firm was among the earlier adopters of self-showing technology in the Phoenix market and continues to build out its operational infrastructure, including integrating internal tools through platforms like Monday.com to reduce manual administrative work.

The property management division of get MULTIfamily has roughly doubled in door count over the past six months, according to O’Sullivan, and he expects that growth to continue through 2026. The recent addition of a dedicated multifamily sales team has also expanded brokerage capacity, with plans to recruit established agents who would benefit from in-house property management to offer their clients.

What the Next 12 to 18 Months May Look Like

The broader question facing Phoenix’s multifamily market is whether the current wave of lease-ups will hold. O’Sullivan is not expecting a quick turnaround. Vacancy is likely to remain elevated, and he is watching how recently absorbed units perform over time. “I’m curious how many of those will turn into evictions,” he says. “How qualified were those tenants?”

On the sales side, meaningful volume recovery likely depends on interest-rate movements. Without lower rates, the math does not work for enough buyers to close the gap with seller expectations. “There needs to be an adjustment to increase the sales volume,” O’Sullivan says.

For investors with patient capital and conservative underwriting, the Phoenix market may be approaching a more realistic entry point. But O’Sullivan’s message is consistent: the deals that look good on the surface are not always what they appear to be, and the operators who come out ahead will be those who stress-test their assumptions before committing.

About the Expert: Patrick O’Sullivan is the Broker/Owner of get MULTIfamily, a Phoenix-based firm combining brokerage and property management with a focus on small to mid-size multifamily assets. With nearly two decades in the Phoenix market, O’Sullivan brings an operator’s perspective to both acquisition decisions and day-to-day leasing conditions — a dual vantage point that shapes his ground-level read on one of the country’s most closely watched multifamily corrections.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.