“The luxury apartment market in urban centers such as New York City and San Francisco may feel the multifamily construction glut the most, as the influx of new high-end apartment buildings could lead to increased competition and potential vacancies.”
Jay Parsons, the Chief Economist at RealPage, recently analyzed the glut in apartment construction. According to Parsons, multifamily construction has seen the largest wave of construction this year since 1970. This increase in unit inventory has raised concerns about downward pressure on rents and the need for developers and investors to understand where the biggest gluts might be.
RealPage looked back at previous peak building periods in metros to gauge a market’s ability to absorb inventory. They categorized the results into five groups: big supply, lots of supply but not crazy, more than advertised, less than advertised, and minimal supply markets.
The big supply group includes cities like Austin, Raleigh, Salt Lake City, and Nashville, which historically haven’t had trouble absorbing big supply but may face challenges in the short term. The lots of supply but not crazy group includes cities like Dallas/Fort Worth, Seattle, and Atlanta, which are still adding construction at a slower pace than the big supply group.
The more than advertised group includes cities like Philadelphia, San Jose, and Washington, DC, where a fair amount of construction is happening, and some submarkets may face challenges. The less than advertised group includes cities like Houston, Chicago, and Indianapolis, where there isn’t a flood of new construction, but some oversupply may still occur.
Lastly, the minimal supply markets include cities like New Orleans, San Francisco, and Cleveland, where the supply will remain tight.
Understanding these different categories can help developers and investors navigate the market and identify areas where pricing power may be stronger in the face of less competition. It’s essential to consider the short and long-term implications of apartment construction and its impact on rents and market dynamics.