One does not have to be an active real estate investor or an expert Phoenix property manager to understand what’s happening in the city. It’s growing. Exploding, really.
Phoenix, Arizona, is experiencing a period of rapid growth and urban expansion. This has been going on for several years now, and if you think the growth has already peaked, you’d be mistaken. We’re still climbing higher and higher in population numbers and our economy is continuing to grow as well.
As the city continues to sprawl, real estate investors are increasingly interested in understanding how these changes impact rental property values. With the right insights and strategies, investors can capitalize on Phoenix's booming market.
Urban expansion is full of challenges and opportunities. We’re studying what that is, what it means for Phoenix, and how it can make you a more profitable investor in this market, which is full of surprises.
Understanding Urban Expansion
What are we even talking about, when we talk about urban expansion?
Urban expansion refers to the growth and development of a city's physical footprint. In Phoenix, this expansion is driven by a variety of factors, including population growth, economic development, and infrastructure improvements. The city is expanding beyond its traditional boundaries, creating new opportunities for real estate development and investment.
Urban Expansion: Benefits We like urban expansion because it can inspire economic growth. When a city continues to grow and move out in different directions regionally, geographically, and culturally, businesses take note. They tend to gravitate to where the most workers, consumers, and clients will likely be. Jobs are created during periods of urban expansion. Businesses are started. These are good things that allow all residents of Phoenix to benefit. | Urban Expansion: Challenges Urban expansion can also put a strain on any city’s infrastructure and resources. There might be more traffic congestion. Schools could become overcrowded. There might be a housing shortage and increased commuting distance as people have to push further out from the city in order to afford a home. There can be environmental degradation as well, thanks to the new building and development that’s often necessary. |
Understanding Property Values
Several factors contribute to the changes in rental property values as Phoenix expands. One significant aspect is the city's infrastructure development, which includes improvements in transportation, public services, and amenities. As new roads and public transit options emerge, previously hard-to-reach areas become more accessible, leading to increased demand for rental properties in those regions. Additionally, the influx of businesses and job opportunities further attracts residents, driving up rental prices.
Another important factor is the demographic shift within the city. As Phoenix becomes a hub for younger professionals and families seeking affordable housing, property investors must adapt to the evolving preferences of these tenants. There’s also a growing demographic of older adults moving into the area. Retirees are coming to Phoenix, and not all of them are buying property. Many of them are renting because they want a low-maintenance lifestyle.
Amenities such as parks, schools, and shopping districts are becoming essential considerations when assessing rental property potential. Understanding these dynamics allows investors to make informed decisions that align with the city's growth trajectory and maximize their returns.
Let’s not forget the role of location. As Phoenix's urban landscape evolves, the significance of location in determining rental property values becomes increasingly pronounced. Properties situated near major employment centers, educational institutions, and recreational facilities tend to maintain higher value and attract a steady stream of tenants. Understanding the desirability of different neighborhoods, whether it be due to new developments or the preservation of existing community character, can significantly influence an investor's return on investment.
You’ll also find that those popular and emerging hotspots may sometimes go unnoticed, providing opportunities for investors willing to conduct thorough market research and act ahead of the curve. Recognizing these location-related dynamics is crucial for navigating the shifting rental market and ensuring sustainable investment outcomes as the city continues to grow. This is where a Phoenix property manager can help. We know the nuances of each neighborhood. We keep up with the development details and the new construction projects. We can make some sound suggestions on where you should be looking to invest as Phoenix’s urban center continues to expand in every possible direction.
Key Drivers of Urban Expansion in Phoenix
Let’s take a look at the what and the why so that it’s easy to make the connection between urban expansion and rental values in Phoenix.
POPULATION GROWTH IN PHOENIX
Phoenix has seen a significant increase in population over the past decade. People are drawn to the city's affordable cost of living, job opportunities, and high-quality lifestyle. This influx of residents fuels the demand for housing, including rental properties.
Here’s how the numbers actually look when we take a peek at how much population growth we’re actually talking about:
2024 Population of Phoenix metro area: 4,777,000. That’s a 1.27% increase from 2023.
2023 Population of Phoenix metro area: 4,717,000. That’s a 1.4% increase from 2022.
2022 Population of Phoenix metro area: 4,652,000. That’s a 1.48% increase from 2021.
You see the trend.
As a city’s population increases, that city must expand to accommodate those new residents. The result will be new neighborhoods, new suburbs, new commercial districts, and a new set of property values, depending on how such expansion impacts specific properties and areas within the growing city.
Generally, urban populations grow at a much faster pace than rural areas. Even with the rise in remote work and more nomadic shifts in how long people tend to stay in one area, most of the renters who are looking for homes prefer to be in or close to a city. They don’t want to be remote. In order to keep all of the residents within a city, the city has to grow.
Population growth is perhaps the most important and most influential factor driving the urban expansion that we’re currently experiencing. But, it’s not the only factor.
ECONOMIC DEVELOPMENT
The city's economy is thriving, with key industries such as technology, healthcare, and manufacturing contributing to job creation and economic stability. This economic growth attracts new residents and businesses, further driving urban expansion.
According to the Arizona Technology Council, around 40 companies expanded their operations and presence in the Valley over the last year. That growth in the business sector has also spurred growth in the urban core of Phoenix.
Those companies added nearly 8, 000 jobs, and those jobs come with an average salary of around $72,000 a year.
Sendoso has relocated its corporate headquarters from San Francisco to The Grove, one of the most historic neighborhoods in Phoenix.
Williams-Sonoma has opened a new fulfillment and distribution center in Glendale.
Taiwan Semiconductor Manufacturing Company is creating two new facilities in North Phoenix.
As you can see, things are happening economically, and this is contributing to the growing and expanding city of Phoenix as well. Metro Phoenix is a more attractive option than some of the more expensive coastal markets. When businesses want to build, grow, or relocate, coming to an urban center like ours makes sense.
INFRASTRUCTURE IMPROVEMENTS
The third prong in the three-way push towards urban expansion in Phoenix is the fact that the city has the capacity to support such growth. Infrastructure improvements have been a priority, and that means there’s no reason to scale back the full-steam-ahead momentum that we’re currently caught up in.
Investments in transportation and infrastructure are critical to supporting urban expansion. Phoenix is making significant strides in improving public transit, road systems, and utilities to accommodate its growing population. These developments enhance connectivity and accessibility, making a home in outlying areas not only possible but more attractive to renters.
Understanding Expansion’s Impact on Phoenix Rental Values
Urban expansion has a profound impact on rental property values, and understanding these dynamics is crucial for real estate investors. If you’re going to structure your own investment goals and strategies in a way that maximizes what this market shift can do for you, it’s important that you get to know what kind of impact we’re working with.
Increasing Demand for Well-Maintained, Well-Located Rental Homes in Phoenix
An expanding urban center in Phoenix means there’s more demand for rental homes, which spurs the creation of more supply. Typically, new construction might serve the need for supply and push rental prices down. That’s not the case here. The demand is high enough that even as new properties come onto the market, they’re being rented out quickly. This drives up rental prices. There’s enough competition among tenants to keep your prices up.
Increasing demand in an expanding urban city means higher rental yields. The sprawling urban area will attract new residents and businesses, which leads to higher rental yields, presenting excellent opportunities for investors to maximize what they’re earning. If you are already invested in Phoenix rental properties, you know your rents have been higher over the last few years. Even as they peak and settle, the yield is inherently more than it’s been. If you’re thinking about investing in Phoenix, you know that you have lucrative and diverse opportunities in a very large and promising market.
Opportunities in New Phoenix Neighborhoods
Rental values are also affected by location, as we’ve discussed. With an expanding urban landscape in any city, new neighborhoods are likely to be discovered, created, or expanded. Investors can leverage this to their advantage by studying new neighborhoods, looking for ways in which existing neighborhoods are shifting, and following the data and analytics that show us which areas are likely to be the most profitable when it comes to rental properties.
New neighborhoods arise as the city expands. Investing early in these developing areas can yield significant returns as property values rise over time.
Property Prices Will Rise with Urban Expansion
There are the rising rental values that come with urban expansion and also the rising property prices that will benefit investors when it’s time to sell a property. When you own an asset in a place that people want to be, you’re going to make money on that asset whether you’re renting it out or selling it.
Where are you likely to make the most money when the city of Phoenix is growing and expanding?
Appreciation Potential
As infrastructure improves and amenities become more accessible to residents, property values in expanding areas tend to rise. Smart investors will benefit from capital appreciation by acquiring properties in these regions. There are a lot of ways to increase your property value and your appreciation, of course. It’s not just the market that is going to push you forward. But, the market shift and the expanding city will support your appreciation when you’re also making improvements and providing added-value services to your tenants. Lean into every opportunity to earn more, whether it’s with smart home technology upgrades, a generous pet policy that brings in extra income, or a focus on tenant retention. All of those benefits coupled with the growing market will lead to you possessing an investment that’s far more valuable than when you bought it.
Seizing on a Competitive Advantage
You’ll also make more money in a market like this one because of what you can offer that others cannot. When investors can identify areas that are ready to expand with Phoenix, you’ll gain a competitive edge. Buy properties in areas that are expected to grow, but buy those properties while the prices are still low.
Make sure your property stands out from the others. Offer something unique, which will further push up what you’re able to earn now and in the future.
Leverage the Changing Demographics in an Expanding Urban Market
The demographics will shift as new people move into the Phoenix rental market, and that’s going to require you to shift the way you lease, manage, and maintain your home. By understanding the demographics of this unique area, you’ll be better equipped to market to the right audience. The diversity of the market, for example, might inspire you to create listings in Spanish as well as English. With older retirees moving into the area, you might consider investing in properties that are located in 55+ neighborhoods. With more and more remote workers moving here from the tech hubs where they once had to live and work, you might want to implement some smart home tech in your rentals. This will make them more attractive to those workers.
Understanding who your new tenants are likely to be will help you position your properties to be more competitive on the market.
How to Be Strategic as a Real Estate Investor in Phoenix Right Now
To leverage Phoenix's urban expansion effectively, real estate investors should consider their strategies and investment goals. We can make some general recommendations, but the right shift for you will depend on your investment goals, your current portfolio of properties, and where those properties are located. Here are the overarching considerations that we believe every real estate investor should make:
Conduct Thorough Market Research. Stay informed about emerging neighborhoods, infrastructure projects, and demographic shifts. Analyze market trends to identify areas with the highest potential for rental property value growth. Even if you do not live in Phoenix, when you have rental properties here, you need to stay up to date on the market and its performance. Your information gathering should not start and stop at the real estate market, either. You want to know about those infrastructure projects, the employers coming to Phoenix, and the way tenants are behaving. You want a sense of the economic picture. Keep yourself educated. Partner with other investors in Phoenix and commit to a network. Work with a Phoenix property manager. Read all of the blogs and listen to all of the podcasts. |
Assess Long-Term Viability: While urban expansion offers exciting opportunities, it's important to assess the long-term viability of investments. Consider factors such as economic stability, job growth, and future development plans to ensure sustainable returns. It’s always important to keep your entire portfolio diversified so you can protect yourself against any surprises or sudden downturns. Consider investing in a mix of property types and locations to mitigate risks and maximize returns. Diversification allows investors to adapt to changing market conditions and capitalize on various opportunities that arise from urban expansion. |
Partner with Local Experts. As we mentioned above, this will always help you. Such partnerships before you need them are especially valuable. This is a relationship business. Collaborate with local real estate agents, property managers, and developers who have in-depth knowledge of the Phoenix market. This expertise can provide valuable insights and help investors make informed decisions. |
Phoenix's urban expansion presents a strong set of opportunities for real estate investors looking to capitalize on rising rental property values. By understanding the drivers of urban growth and adapting strategies accordingly, investors can position themselves for success in this dynamic market.
We’d love to be your property management partner in Phoenix, helping you throughout the entire investment lifecycle. This market is our business. This industry is where we excel. Contact us at Service Star Realty. We’ll create a plan that’s customized to your needs in this expanding urban market.
