The apartment market is set to see more than 330,000 units deliver nationally this year, the fifth consecutive year that has happened.
Despite labor shortages, supply-chain issues and skyrocketing materials costs, developers are going big on multifamily development, particularly in a few key markets. This year, more than 334,000 units are projected to open in the U.S., according to Yardi Matrix.
“We’re seeing great inbound interest in our business from the capital markets nationally, and we’re seeing it from our customers nationally as well,” said Michael Boujoulian, managing director at Alliance Residential Co., who oversees the New England region. “From Phoenix to Boston, we’re looking at some pretty spectacular production and performance numbers.”
There was a bit of a pullback in new projects breaking ground, including multifamily, last year during the early days of the Covid-19 pandemic, said Doug Ressler, manager of business intelligence at Yardi Matrix. That’s since come roaring back in a lot of markets.
Plus, of course, many of the projects delivering in 2021 started pre-pandemic.
For the fourth year in a row, the Dallas-Fort Worth metro is set to deliver the greatest number of apartments this year, even with a year-over-year decline of 13%, Yardi Matrix found. Other markets expected to see a lot of new apartment supply this year include New York, Phoenix, Houston and Los Angeles.
Some markets are seeing a big year-over-year jump in the number of new units being added compared to 2020. Charlotte, North Carolina, for example, is set to add 10,723 new apartments this year — that’s a 100% increase over 2020. Charlotte is on track to beat its own construction records, according to Yardi Matrix.
San Jose’s new supply is up 79% year over year and Orlando, Florida, is up 78%.
A couple of markets among the top 20 analyzed by Yardi Matrix are seeing fewer units being added compared to 2020. They include Denver, with a 46% decrease; Seattle, at 19% fewer; and Austin, Texas, expected to see 10% fewer new units.
In many markets, the new supply is meeting demand, especially Sun Belt cities that continue to be the recipient of population and job growth. Markets under stress include areas in the Northeast and places facing outbound migration, Ressler said.
He said a ketchup-bottle economy, in which supply becomes bottlenecked before it suddenly floods the market at the same time, could possibly happen within the apartment sector. The pandemic has exacerbated supply-chain issues for all sectors of commercial real estate.
“The supply chain is dramatically readjusting to the new normal,” Ressler said.
Boujoulian said when Alliance meets weekly with its general contractors nowadays, there’s almost always some kind of surprise — a new material facing a shortage or a sudden price increase. On a project Alliance has in Waltham, Massachusetts, the company recently learned its construction partners were having difficulty sourcing gusset plates, which connect beams and girders to columns, in a specific size. To keep the project on schedule, the team ended up finding and purchasing much larger gusset plates.
“It’s a real-time adjustment,” Boujoulian said. “It’s so pervasive … PVC, cement board, roofing materials, appliances are a real big challenge. Everybody is talking about it.”
These days, Alliance and other developers must plan ahead, sometimes ordering materials ahead of when they’re needed and storing them in containers.
Land is a finite commodity and, because of the amount of interest and investment in the space, apartment developers are venturing farther out to find tracts, Ressler said. Exurban parts of metro areas are becoming new frontiers for apartment development.
But there’s still a ton of construction in urban cores. Ressler said, in general, apartment construction underway now is about split between urban centers and suburban or exurban areas.
Boujoulian said Alliance builds across all geographies but, specifically in Boston, has recently found the most success in areas immediately outside of the urban core. With lots of life sciences jobs being added to the Greater Boston area, it’s driven housing demand among a growing cohort of well-paid, highly educated professionals.
“They’re working at these great lab companies from 9 to 5 and we want them from 5 to 9,” Boujoulian said.
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