Construction Delays Supporting Multifamily Rents

Average multifamily monthly rents were largely flat in August amid slowing new property completions, said YardiMatrix, Santa Barbara, Calif.

Rents rose just $1 to $1,352. “Although overall gains have slowed during the summer months, August kept alive a streak during which rents have increased every month this year,” YardiMatrix Vice President Jeff Adler said.

With the economy performing well and multifamily demand remaining consistently strong, the multifamily sector’s big story is supply, the report said. “The amount of new luxury units has been arguably the most important factor in rent growth over the past year.” Markets with a large pipeline of high-end units–including Austin, Texas, San Francisco, Washington, D.C. and Nashville, Tenn.–have seen rent growth decelerate rapidly.

But there are signs new supply is slowing, which could increase rent growth, YardiMatrix said. Deliveries, which averaged 17,700 per month last year, fell to 14,500 per month in early 2017 and fewer than 10,000 in July and August. Nearly one-third of the 480,000 units currently under construction are being delayed by 7.5 months on average.

“The primary reason for the delays is the critical shortage of construction workers, which is not a new trend but is being exacerbated by the Trump administration’s more restrictive immigration policies,” the report said. As a result, the firm reduced its new deliveries forecast to 300,000 for this year, down considerably from the 360,000 it had expected and only slightly more than the 281,000 that came online in 2016. “We now believe that the supply cycle will peak in 2018, with 360,000 new units delivered,” YardiMatrix said.

Axiometrics, Dallas, called stability the “hallmark” of apartment market performance so far in 2017. It noted rent growth stayed within a 20 basis point range between December 2016 and May before jumping a bit in June and falling a bit in July, essentially keeping things at the same pace just above the 2.3 percent long-term average.

“The forces driving performance account for the stability in the national market,” Axiometrics said. The firm noted July’s 94.9 percent occupancy rate was essentially the same as in both May and June. “Though quite close to the 95 percent at which Axiometrics/RealPage considers a market full, these recent rates almost ensure that this summer’s occupancy will underperform last summer’s rates,” the report said.