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Apartment Pipeline Heading Toward Peak

Deliveries Won't Slow Down Until Second Half of 2017

By Dave Sorter | Thursday, November 17, 2016

If you thought the number of new apartments units hitting the market has been high the past few years, the next three quarters will most likely make those figures look small.

After construction labor shortages delayed many of the projects in the apartment pipeline scheduled for delivery this year, deliveries will likely hit a cycle peak in the fourth quarter of 2016 and the first two quarters of 2017, according to Axiometrics’ identified supply. The surge started in the third quarter of this year, when 24,127 more apartments were delivered than were in the second quarter, the apartment data shows.

The number of units coming to market will increase by 8,737 in the fourth quarter, remain essentially the same in the first quarter of next year and soar by 10,896 in the second quarter before starting to trail off.

Of course, further delays and construction starts could increase the number of units delivered in the second half of 2017.

The 91,957 new units identified for fourth-quarter delivery represents 30.0% of all 2016 supply, which is expected to end up at 305,840 apartments available for leasing, according to pipeline data as of Nov. 13. Some 343,582 units are anticipated to come to market in 2017, with 26.7% of them identified for first-quarter delivery, 29.0% for second-quarter delivery, 24.3% for third-quarter delivery and 19.1% for fourth-quarter delivery.

Houston is expected to receive the most new units in the fourth quarter before the pace of construction begins to slow in 2017. Dallas; New York; Washington, DC; and Atlanta follow.

New York’s delivery schedule is a telling example of how construction delays have affected the apartment market. Six months ago, in May, Axiometrics had identified 9,745 units to come to market in the fourth quarter of 2016 and 18,510 for 2017 delivery. Now, just 3,676 apartments will open to residents this quarter, with 27,210 expected next year.

Though construction on some properties scheduled to open late in 2017 began after our May data was compiled, the lion’s share of the changes was caused by the shifting of property completion from 2016 to 2017. The construction labor shortage causes delays on properties now under construction, which in turn shifts the timeline for the next projects in line.

With all the changes, New York is expected to receive the highest number of new apartments in 2017, followed by Dallas, Houston, Atlanta and DC. The 2017 identified supply is higher than 2016 supply in all those metros except Houston. Farther on down the list, Austin and Charlotte’s pace of supply will ebb, but Anaheim/Orange County construction will ramp up heavily.

With New York expected to lead all metros in 2017 new supply, it shouldn’t surprise anyone that three of the metro’s submarkets are within the top 10 for submarket deliveries. Kings County (Brooklyn) has the most new deliveries identified, while Queens is No. 4 and Midtown West No. 8.

Urban core submarkets once again dominate the list, with only two suburban areas in the top 15 – Irvine, CA and Plano/Allen/McKinney, TX in the Dallas area. Irvine is home to several companies in the job-producing technology sector. The Plano/Allen/McKinney submarket, which includes booming Frisco, is home to the new Toyota headquarters and is fast becoming an urban-like area within the suburbs.

The good news is that the U.S. economy remains in growth mode and employers are adding jobs, which means much of the new supply will be absorbed. However, it is also likely good news that the amount of supply will start to recede late in 2017 and into 2018.

Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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