Multifamily Completions Continue Their Surge

An observation that CRE experts have made to GlobeSt.com for at least the last two years has been the record number of apartment completions in 2023 and 2024. The Census Bureau numbers from August show that the trend continues.

Last month, the rate of unit completions for privately-owned multifamily buildings with at least five units was 740,000. That was 56.4% higher than the 473,000 reported in July and also the higher monthly number since 781,000 in April 1974. The number of started units was less than half at 333,000, which was close to July’s 363,000. And permits for buildings with at least five units was 451,000, over the previous month’s 408,000.

Looking at units in buildings of two or more units, deliveries were 759,000. By region, that was 50,000 in the Northeast, 79,000 in the Midwest, 502,000 in the South, and 128,000 in the West. According to Bloomberg, deliveries over the last 12 months in the West and Midwest are at the highest levels since the 1980s. The Northeast, in contrast, has seen little change.

According to a note from Oxford Economics UL Lead Economist Nancy Vanden Houten, this rush of completions should begin to slow soon because of a roughly 18-month delay between starts and completions. But for now, they will keep coming.

For multifamily owners, Houten wrote, “Additions to the multifamily stock have eased some pressure on rents, although the increases in supply and associated rent relief have not been uniform across regions.”

None of this is evenly distributed across the country. CBRE’s biannual cap rate survey for multifamily showed expectations for cap rates. The report provides two big takeaways. One, most respondents expect cap rates to at least remain flat or to decline somewhat, suggesting a market turning around or, as the report put it, the response might suggest an “inflection point.”

Second, the most optimistic sit in top gateway markets. Across New York, Boston, Washington, D.C., Los Angeles, San Francisco, and Seattle, a percentage of the respondents in the upper 80s expected a decline in cap rates. The average of all infill markets was about 39%. Infill markets in high-growth Sunbelt areas were the least optimistic at roughly 9%.

It is all a matter of developers racing after demographic regions that have seen the highest demographic shifts for years. In the too-typical CRE habit of chasing after business even after things have begun to slow, there was too much development too quickly. It will take time to get more balance in some markets.