Capitalizing on Sun Belt Multifamily Markets: Strategic Acquisitions in Scottsdale's Secondary-Tier Submarkets

The Sun Belt's multifamily markets continue to defy broader economic headwinds, driven by in-migration, favorable tax climates, and a cost-of-living advantage over traditional coastal hubs. Phoenix, a cornerstone of this regional resurgence, has emerged as a top-tier investment destination despite short-term supply-side pressures. However, the path to value creation lies not in the headline metrics but in the nuanced dynamics of secondary-tier submarkets like Scottsdale, where strategic acquisitions can capitalize on divergent fundamentals.

Phoenix's Multifamily Market: A Tale of Supply and Demand

Phoenix's multifamily sector is grappling with a surge in construction, with 23,000 units under development as of Q1 2025-accounting for 5.5% of the city's existing inventory, according to Matthews' Q2 2025 report. This construction boom, concentrated in downtown Phoenix and Tempe, has pushed the metro's vacancy rate to 11.9%, with asking rents declining by 2.1% year-over-year, per Matthews' Q1 2025 report. While demand remains robust-evidenced by 18,000 units absorbed in the past 12 months-the oversupply has constrained rent growth, creating a challenging leasing environment, as noted in Matthews' Q2 2025 report.

Yet, Phoenix's long-term appeal persists. The city's diversified economy, strong in-migration, and relatively low cost of living position it as a Sun Belt outlier, with CBRE's 2025 outlook forecasting a 2026 slowdown in construction starts that could stabilize the market. For investors, the key is to navigate the current turbulence by focusing on submarkets insulated from the broader oversupply.

Scottsdale's Submarket Resilience: Location, Quality, and Timing

Scottsdale, a secondary-tier market within Phoenix, exemplifies this opportunity. While the broader metro struggles with elevated vacancies, Scottsdale's core submarkets-Old Town Scottsdale and the Camelback Corridor-have maintained occupancy rates above 94%, according to Radix's October 2023 report. These areas benefit from limited new construction, high-quality developments, and lifestyle-driven demand that transcends cyclical pressures, per MMG Real Estate's Q2 2025 report.

Data from Q2 2025 underscores this divergence. While Phoenix's overall vacancy rate hit 12.1%, Old Town Scottsdale and North Scottsdale reported stabilized vacancy rates under 7%, according to MMG Real Estate. Cap rates in these premium submarkets have compressed below 5%, reflecting investor confidence in well-located assets, as noted in Matthews' Q2 2025 report. For instance, Goodman Real Estate's $131 million acquisition of Spire Deer Valley at a 4.8% cap rate highlights the premium placed on high-quality, stabilized properties, a point detailed in Matthews' Q2 2025 report.

Secondary-tier submarkets like South Scottsdale and North Paradise Valley, however, face greater risks as development pipelines accelerate. Investors must differentiate between submarkets with supply constraints and those exposed to oversupply.

Strategic Acquisition Opportunities: Quality Over Quantity

The current environment favors selective, asset-specific strategies. In Q2 2025, Phoenix's multifamily market saw $4 billion in sales activity, with Class A properties in Scottsdale commanding cap rates as low as 4.8%, according to MMG Real Estate. This reflects a shift toward stabilized, high-quality assets that can weather near-term rent declines.

Investors should prioritize properties in supply-constrained submarkets with strong absorption fundamentals. For example, Old Town Scottsdale's limited new construction-unlike the West Valley or Downtown Phoenix-positions it to outperform as the market rebalances, as noted in Matthews' Q2 2025 report. Additionally, assets offering lifestyle amenities (e.g., fitness centers, co-working spaces) are better positioned to attract renters in a competitive leasing environment, a trend MMG Real Estate highlights.

Future Outlook: Positioning for 2026 Stabilization

The Phoenix market's equilibrium is expected to shift in 2026 as construction starts decline, per CBRE's 2025 outlook. This will likely reverse the current negative rent growth, with Scottsdale's submarkets poised to lead the recovery. Investors who act now-acquiring assets in insulated submarkets at compressed cap rates-can position themselves to benefit from both near-term cash flow and long-term appreciation.

However, timing is critical. The window for strategic entry narrows as the supply pipeline unwinds. Developers and investors holding newly built units in oversupplied areas may be forced to offload assets at discounts, further compressing cap rates in secondary-tier markets, according to Radix's October 2023 report.

Conclusion

The Sun Belt's multifamily markets, and Scottsdale in particular, offer a compelling case study in strategic asset allocation. While Phoenix's broader challenges are undeniable, the city's secondary-tier submarkets present opportunities for disciplined investors who prioritize location, quality, and absorption fundamentals. By leveraging the current dislocation-driven by oversupply and compressed cap rates-investors can position themselves to capitalize on the inevitable stabilization in 2026.