Industry News

Market Reporting that Matters

Pipeline Data Shows Peak Supply Moving Later

New York Still Tops Apartment Construction List

By Dave Sorter | Wednesday, May 24, 2017

 

Construction delays have been a fact of life in apartment construction circles for a while. The shortage of construction workers and the increasing costs of materials have caused developers to push the timelines for many of their projects back a quarter or two.

That trend is continuing, according to Axiometrics pipeline data. Late last year, the cyclical peak for new supply was going to be in the second quarter of 2017. That peak moved to the third quarter early this year. It’s still there, as of May 22, but further delays of about 3,500 units would slide the peak back to the fourth quarter of 2017.



Click to enlarge in new tab

The chart above shows that 25,137 fewer units were delivered in the first quarter of 2017 than were expected at the start of the year. Second-quarter deliveries are down by 19,663 with just more than one month still remaining. Meanwhile, supply identified for third-quarter completion has increased by 39,108 and fourth-quarter supply is up by a whopping 43,645.

So much for the slowdown in apartment construction starting this year, which is expected to end with 395,626 new units having come to market – 38.3% more than were delivered in 2016.

While, as of now, 2018 appears to be when the building boom will mellow, one never knows what further delays are in store and which new projects will start construction. The pipeline data currently shows 77,194 new units identified for first-quarter 2018 delivery, with 225,210 identified for the entire year. Axiometrics forecasts that number will eventually rise to 89,787 for the first quarter and 319,541 for all of 2018.



Click to enlarge in new tab

Almost all of the metros with the most supply identified for 2017 delivery will receive more supply than thought at the beginning of the year. The two major exceptions are New York, which will still have the most new supply this year even though it is expected to get 563 fewer units that were identified at the start of the year, and Los Angeles, down 1,315 units. Denver, Miami, San Francisco and Miami are also down slightly.

On the other hand, Boston developers have gotten busier, with 1,699 more units identified for 2017 delivery than were expected at the beginning of the year. Austin is up 1,262 units, despite effective rent growth that turned negative in April, while Houston has added 957 units and Orlando 919, the apartment market data shows.



Click to enlarge in new tab

Brooklyn – the Kings County submarket – still has the most identified supply for 2017 among submarkets, but the gap over No. 2 Atlanta/Fulton has narrowed considerably during the first five months of the year. Both submarkets’ supply numbers have dropped, but Brooklyn lost 636 units while Atlanta/Fulton lost only 63. The Atlanta submarket, which includes Downtown, Buckhead and Midtown, now stands just 209 units shy of Kings County.

Many urban-core submarkets also will receive fewer units than expected at the start of the year. Those include Seattle’s Downtown/Capitol Hill/Queen Anne, Houston’s Montrose/River Oaks, Nashville’s Downtown/West End/Green Hills, DC’s Capitol Hill/Southwest, Chicago’s Gold Coast/River North, Dallas’ Oaklawn and Los Angeles’ Central.

And that’s not including Queens County in New York, which will receive 1,211 fewer units than expected five months ago.

Suburban markets were the big gainers, with Houston’s Far Northwest/Montgomery County and Dallas’ Plano/Allen/McKinney/Frisco gaining 643 and 544 units, respectively. One Dallas outer core submarket, North White Rock, had a healthy gain of 494 units, according to the pipeline data.


Click to enlarge in new tab

Axiometrics uses Identified Supply when analyzing the near-term future of apartment construction. Identified Supply takes into account only properties and units that developers have announced in some way, be it through permit applications, news releases, direct communication with Axiometrics staff or other methods. Other pipeline figures are based on Modeled Supply, which takes into account historical trends, among other things, and is just an estimate. Axiometrics does use Modeled Supply for its longer-term pipeline outlook.

The way the pipeline data is trending, the peak of new supply may keep getting later and later, which delays the supply moderation even more. With annual effective rent growth holding steady near the long-term average of 2.2%, the apartment market needs a reduction in supply to strengthen.

 

 

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.

Javascript is not enable. This may affect content rendering. You can enabled Javascript in your Settings Menu.