Developers have been in a race to add new multifamily units to cities across the country since 2015. But the latest research from Cushman & Wakefield suggests that this building boom is finally slowing.
In a report released in December of last year, Cushman & Wakefield said that Class-A multifamily construction has peaked and is expected to now slow. The company said that Class-A deliveries fell 22 percent from the third quarter of 2017 to the third quarter of 2019.
What’s behind the slowdown in new construction? Cushman & Wakefield cited rising construction costs, a lack of land in key markets, slowing rent growth and slower capital appreciation among multifamily assets.
Looking back at the apartment construction boom, Cushman & Wakefield said that more than 68 percent of annual multifamily deliveries from 2015 through 2018 were Class-A properties. The company said, too, that just 10 U.S. markets accounted for 36 percent of all these deliveries from 2015 through 2018.
Another interesting fact: Developers weren’t overbuilding in these 10 markets. Cushman & Wakefield reported that the collective multifamily inventory in these 10 markets grew an average of just 2.2 percent annually from 2015 to 2018. This explains why the U.S. multifamily vacancy rate was just 5.9 percent as of the third quarter of 2019. That’s the lowest this figure has been since 2001.
From 2001 to 2019, the U.S. multifamily market expanded by just more than 200,000 units each year on average. Starting in 2014, deliveries surpassed the average, peaking in 2017 at 354,000 units. Class-A units have exceeded 100,000 a year every year beginning in 2013.