Over the next two years, a near-record 716,000 new multifamily housing units are expected to be delivered in the U.S., creating a short-term oversupply. However, this new supply is essential for keeping long-term multifamily fundamentals healthy, according to the latest research from CBRE.
Even with a surplus of multifamily units over the short term, CBRE forecasts that an additional 2.3 million new units are needed nationwide over the next decade. This means the nation needs nearly 200,000 additional units a year even after the largest portion of the deliveries have happened through 2024.
“While a multifamily development surplus in the next 18 months may weigh on market fundamentals in the short term, new deliveries will be limited beginning in 2025 and will ultimately lay the foundation for a healthy market throughout the next cycle,” says Kelli Carhart, leader of Multifamily Capital Markets for CBRE in the U.S.
The number of multifamily units currently under construction across the nation—over 750,000—is the highest amount since the 1980s housing boom. Most of these new units are concentrated in markets that benefited from in-migration during the pandemic, such as Atlanta and Texas’ Austin and Dallas. According to CBRE, population growth in these markets is beginning to decelerate, as the rapid increase in construction costs due to inflation and supply chain disruptions has caused multifamily starts to slow as well—meaning the construction peak is likely occurring.
Total multifamily inventory is slated to expand by 4.2% over the next two years. CBRE anticipates that the surge in construction will push the multifamily sector’s overall vacancy rate above equilibrium to a peak of 5.2% from 4.6% by the end of the year.
Although the multifamily sector has recorded negative net absorption—the net change in the total number of apartments leased—over the past three quarters, CBRE expects demand to turn positive in the first half of 2023 and limit the extent to which rising vacancies could slow rent growth. Rent growth of 3.5% is anticipated by CBRE for the year—down from 6.7% in 2022 and 13.4% in 2021; however, it will remain relatively healthy when compared with the long-run average of 2.5%.
CBRE also adds that the potential for construction delays and extended timelines due to ongoing labor shortages could limit the increase in vacancies. Looking back to 2013, which was early in the current construction cycle when the pipeline was approximately 300,000 units, the average time from start to finish averaged 16.5 months. The timeline today is nearly 25% longer, averaging 20.5 months.
