This year was predicted to be the peak for delivery of new apartment units with more than a half million currently under construction; however, longer construction times are holding back much of that supply. Now, 2018 is predicted to be the peak of the apartment delivery cycle, says Multi-Housing News’ Paul Fiorilla in this article. This delay in unit supply hitting the market could have a positive impact on unit absorption and occupancy rates while limiting the potential for declining rents or decelerating rent growth.
The longer construction timelines appear to be caused primarily by a lack of skilled labor in the construction trades. Following the 2008 recession, construction of multi-family apartments was at an all-time low and many skilled construction workers dropped out of the labor market. As the economy improved and demand accelerated, construction picked up significantly but the skilled workers did not return and supply has not increased as quickly as the demand for labor. This shortage resulted in delays creeping into the delivery timelines of many apartment developments. As of 3Q17, the average construction time had lengthened to 22 months from 16.5 months in 2013, according to Yardi Matrix.
The immediate impact to the multi-family industry is both positive and negative. On one hand, the longer timelines result in higher construction costs; on the other, delayed openings are preventing supply from outstripping demand and pushing down occupancy rates and rents. The under construction units will eventually make their way into the market, but the increased time to delivery will allow for steadier absorption and may stabilize the current deceleration that is occurring in rent growth. In the end, the longer timelines may provide the cushion needed for a soft landing in this market cycle.
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