Having weathered the coronavirus pandemic somewhat better than the single-family home construction sector, new supply of multifamily housing delivered in 2021 is expected to increase by around 17% to 334,000 units, according to Yardi Matrix’s latest U.S. Outlook.
“Some 174,000 units were absorbed nationally through May, which puts 2021 on track to be among the hottest years since the 2008 recession,” states the report.
As of mid-year, some 863,500 multifamily units were under construction, representing 6% of the existing U.S. stock. That’s good and bad news, suggests Yardi Matrix, because such a large number of projects could impede the overall rent recovery in so-called “gateway” markets like Miami, whose forecasted deliveries are projected to equal 3.7% of its existing stock; Boston (3.6% of existing stock), San Francisco (3.3%), Los Angeles (2.6%), Washington D.C. (2.3%), New York (1.8%) and Chicago (1.3%).
“These new projects might have a difficult time leasing up, as there is already much supply in these metros with limited new demand, especially in the Lifestyle segment,” states the report.
The leaders in multifamily completions over the past 12 months include Austin (4.4% of total stock), Charlotte (4.3%), Minneapolis-St. Paul (3.7%) and Raleigh (3.6%). Yardi Matrix points out that among these four metros, Charlotte has been the only one able to sustain strong rent growth and deliveries simultaneously. Still, rents in all four metros have picked up in recent months, driven by a surge in migration and demand for apartments.
Yardi Matrix foresees Dallas leading the country in multifamily completions this year. Image: Yardi Matrix
SMALLER MARKETS, BIGGER DEMAND
Yardi Matrix looked at 136 markets, and found robust growth in tertiary metros like Northwest Arkansas (home to Walmart’s headquarters city of Bentonville) that led the list with 8.8% of its stock expected to be delivered this year from new construction. Next were Wilmington, N.C. (with 7% of its stock expected to be delivered), and the Southwest Florida Coast (6.8%). These metros had limited existing multifamily housing stock to begin with.
Measured by sheer units, Dallas is forecast to have the highest number of completions in 2021 (21,318 units), followed by Phoenix, Houston, Washington DC, Austin, L.A., Atlanta, and Miami. Yardi Matrix believes that while Dallas, Phoenix, and Houston should have little trouble absorbing new deliveries, “Washington DC might struggle,” because demand is lagging in part due to remote work requirements or preferences, and out-migration.
Material price hikes are the “wild card” in prognostications about apartment development, says Yardi Matrix. The extreme volatility of lumber prices over the past several months, coupled with increases in the cost of other building materials, could slow new starts and force developers “to choose between raising rents and reducing profit margins.”
RENTS RISING AT UNSUSTAINABLE RATES
Through the first six months of 2021, national asking rents rose 5.8%. Yardi Matrix estimates that year-over-year asking rent growth, as of June, stood at 6.3%, “well above the [country’s] pre-pandemic performance.” Rent inflation is even more pronounced in tech hubs and tertiary metros, and asking rent growth in the Southwest and Southeast has been at levels “not seen in decades.”
While this escalation for multifamily units probably isn’t sustainable, Yardi Matrix expects conditions for above-average rent growth to persist in many metros “for months.” The report points out that rents are driven by “buoyant” demand. In the 12 months through May, 378,000 multifamily units were absorbed nationwide. The top markets for absorption as a percentage of total inventories were Miami (8,500 units, or 2.7% of stock), Charlotte (4,500, 2.4%) and Orlando (4,900, 2.1%).
Through June of this year, rent growth in Phoenix was nearly three times the national average. And despite its year-to-year rent decline, New York bounced back in the first half of 2021. Image: Yardi Matrix
By units, Chicago topped the list with almost 7,800 multifamily units absorbed, or 2.2 % of the Windy City’s stock. And for all the talk about New Yorkers evacuating in droves during the pandemic, rents actually rose by 6% during the first half of this year, and more companies are now requiring employees to return to office work. Rent recoveries through the first half of 2021 were also in “full swing” in Chicago (up 6.5%), Miami (6.4%), Boston (5%), Los Angeles (4%) and D.C. (3.3%).
Yardi Matrix’s report offers an economic outlook that foresees a flat labor participation market, and questions about rising inflation. Economic volatility “is likely to continue” globally until markets get a handle on controlling their virus outbreaks. “However, that does not mean there won’t be strong economic growth in certain sectors and geographies in the short term,” the report states.
Related Stories
Multifamily Housing | Jul 25, 2018
Multifamily market trends 2018: Demographic shifts reshape the residential landscape
Changing generational preferences are prompting multifamily developers to re-strategize.
Multifamily Housing | Jul 19, 2018
Multifamily market stays hot in first half of 2018
The average rent grew by $12 in June, to an all-time high of $1,405, according to a survey of 127 markets by Yardi Matrix.
Multifamily Housing | Jul 18, 2018
First apartment building funded by Massachusetts’ workforce housing subsidy program opens
The transit-oriented Gateway North Residences is centrally located in Lynn, Mass.
Codes and Standards | Jul 17, 2018
NIMBYism, generational divide threaten plan for net-zero village in St. Paul, Minn.
The ambitious redevelopment proposal for a former Ford automotive plant creates tension.
Codes and Standards | Jul 17, 2018
In many markets, green features are more of a requirement for apartment renters
Renters in many U.S. cities have come to expect green features in apartments that they rent, with an eye toward energy efficiency and healthy indoor air.
Multifamily Housing | Jul 13, 2018
Student housing vs. multifamily housing—what are the differences?
While student and multi-family housing share a common building form, it’s the student resident that drives the innovation of new spaces.
Multifamily Housing | Jul 11, 2018
Meet the ‘CoHaus’: N.Y. developer unveils large-scale flats concept for boomers, Gen Xers
With its new CoHaus development, Ward Capital Management is betting on baby boomers downsizing and Gen Xers upsizing.
Sponsored | Multifamily Housing | Jul 10, 2018
Renovated mixed-use development features more desirable rentals
Multifamily Housing | Jul 2, 2018
17-unit condominium will rise one block south of Sunset Boulevard in West Hollywood
SPF:architects is designing the building.
Multifamily Housing | Jun 27, 2018
To take on climate change, go passive
If you haven’t looked seriously at “passive house” design and construction, you should.