Outsize multifamily deliveries and development activity in some major metros could increase vacancy rates and stagnate rent growth, according to a new report by Yardi® Matrix focusing on regional multifamily supply in some key U.S. housing markets.
Yardi Matrix conducted a study to determine which areas might be at risk of oversupply or undersupply over the next five years.
The research revealed that deliveries in 2016 and 2017 helped compensate for the construction shortage in the wake of the great recession.
Multifamily supply research key points
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- With significant supply expected to be delivered over the next two years, multifamily deliveries may outpace demand in some of the top 30 metros in the U.S. Expect volatility, as some markets and submarkets with outsize development activity experience rising vacancy rates and stagnating rent growth.
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- In the near term, markets at risk of oversupply include Denver, Seattle, Charlotte, Dallas, Phoenix and Miami, where deliveries are expected to outpace demand. Investors and developers can still find attractive deals in those markets, but submarket and sites election will become even more important.
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- The converse holds true in markets where supply and demand appear to be in balance. In many markets, the majority of development is taking place in the urban core, which may create opportunities in growing and urbanizing suburban areas.
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- Over the longer term, the supply picture is more balanced. We expect construction will moderate after the more than 600,000 units currently under construction are completed.
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- Most of the metros that are at short-term risk of oversupply have strong economies and healthy multifamily demand, so units coming online should be absorbed by growing populations. Plus, developers will pull back the throttle if occupancy rates wane much.
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- Metros with the most deliveries relative to projected demand long term include Seattle, Charlotte, Dallas and St. Louis. Metros with the most favorable demand/supply metrics include Los Angeles, the Inland Empire, San Diego, Houston and Chicago.
Regional multifamily supply
- Metros with the most deliveries relative to projected demand long term include Seattle, Charlotte, Dallas and St. Louis. Metros with the most favorable demand/supply metrics include Los Angeles, the Inland Empire, San Diego, Houston and Chicago.
“Most of the metros that are at short-term risk of oversupply have strong economies and healthy multifamily demand, so units coming online should be absorbed by growing populations,” the report concludes.
Markets and submarkets with outsize development activity, however, “can expect volatility” that will give rise to higher vacancy rates and stagnant rent growth. Achieving market equilibrium going forward will require developers to “intelligently calibrate the amount and location of new projects” to accommodate finite demand.
Read the full report here: “U.S. Multifamily Supply and Demand Forecasts by Metro” to learn more about homeownership, population shifts, social trends and other factors affecting the multifamily market.
Yardi Matrix offers comprehensive market intelligence tools for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, industrial, office and self storage property types. Email matrix@yardi.com, call 480-663-1149 or visit yardimatrix.com to learn more.
About Yardi
Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.
