MARKET BREAKDOWN
SUPPLY & DEMAND
Development Pipeline Creates Near-Term Risks forMultifamily
KEY FACTORS FOR POTENTIAL MARKET VOLATILITY.
by Paul Fiorilla
M
ultifamily development has ratch- eted up in recent years, with more
attractive deals in those markets, but sub- market and site selection will become even more important. The opposite holds true in markets where supply and demand appear to be in balance. In many markets, most development is taking place in the urban core, which may create opportunities in growing and urban- izing suburban areas. Over the longer term, the supply picture is more balanced. Demand remains healthy, but we expect construction will moderate after the more than 600,000 units currently under construction are completed. Most of the metros that are at short-term risk of oversupply have strong economies and healthy multifamily demand, so units com- ing online should be absorbed by growing populations. Plus, developers will pull back the throttle if occupancy rates wane much. Metros with the most deliveries relative to projected demand long-term include Se-
attle, Charlotte, Dallas and St. Louis. Metros with the most favorable demand/supply metrics include:
than 600,000 units delivered over the last two years and the same amount to be delivered in 2018 and 2019. Is the industry simply meeting the needs of the growing population or are we overbuilding? A study by Yardi Matrix of demand and supply trends in the top 30 U.S. metros by population over the next five years found that multifamily deliveries may outpace demand in some of the top 30 U.S. metros over the next two years. That should create volatility as some markets and submarkets with outsized development activity experience rising vacancy rates and stagnating rent growth. In the near term, markets at risk of oversupply include Denver, Seattle, Char- lotte, Dallas, Phoenix and Miami, where deliveries are expected to outpace demand. Investors and developers can still find
• Los Angeles • Inland Empire • San Diego
• Houston • Chicago
Multifamily has had a great run over the last six years. The recent increase in deliver- ies – 620,000 units were completed in 2016 and 2017 combined, per Yardi Matrix – has helped compensate for the construction shortage in the wake of the Great Recession. But demand is not unlimited, and develop- ers must intelligently calibrate the amount and location of new projects.
TWO-YEAR PROJECTIONS The Yardi numbers forecast 440,000 units will be delivered in the top 30 met-
56 | think realty magazine :: july 2018
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