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 12, 2017
7 noteworthy multifamily projects: posh amenities, healthy living, plugged-in lifestyle
Zen meditation gardens, bocce courts, saltwater pools, and free drinks highlight the niceties at these new multifamily developments.
Mixed-Use | Jul 7, 2017
ZHA’s Mandarin Oriental hotel and residences employs ‘stacked vases’ design approach
The mixed-use tower will rise 185 meters and be located in Melbourne's Central Business District.
Multifamily Housing | Jun 28, 2017
Renters don’t just want nice apartments; they want communities packed with amenities
Based on a survey from the National Apartment Association, the most popular amenities are the ones that bring the community together.
Fire and Life Safety | Jun 22, 2017
After testing, seven tower blocks found to have similar cladding as Grenfell Tower
These blocks will undergo further testing to determine if they are safe.
Multifamily Housing | Jun 20, 2017
Coliving apartments look to fill affordability and availability gaps for urban workers
One provider, Common, emphasizes community in its buildings.
Market Data | Jun 16, 2017
Residential construction was strong, but not enough, in 2016
The Joint Center for Housing Studies’ latest report expects minorities and millennials to account for the lion’s share of household formations through 2035.
Multifamily Housing | Jun 7, 2017
Jersey Strong: Local suppliers step in to help renovate a homeless shelter in the Garden State
American Standard and Philips Lighting donate products and manpower.
Resiliency | Jun 7, 2017
New disaster-resilient infrastructure building and upgrades hope to keep Haven Plaza up and running
The affordable housing complex was hit hard during Hurricane Sandy, leaving residents without electricity or water.
Multifamily Housing | Jun 7, 2017
Multifamily visionary: The life and work of architect David Baker
For 35 years, architect David Baker has been a spirited voice for affordable housing, in San Francisco and beyond.