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Supply Peak Moves to Third Quarter of 2017

Construction Delays Still Affecting Industry

By Dave Sorter | Wednesday, March 1, 2017


It’s no secret that deliveries of new apartment supply in 2017 will reach its peak for this real-estate cycle. The rest of the story is how many units have been identified for delivery this year, and when they will be delivered.

The number of new apartment units coming to market has been on the rise since early this decade, and a variety of circumstances have combined to set the biggest increase in 2017. Apartment construction was at a virtual standstill as the great recession ended, then started picking up in 2012 and 2013 before taking off the past three years, according to Axiometrics' apartment data. 

But though deliveries of new units increased 15.6% from 2014 to 2015 and 7.1% from 2015 to 2016, the 388,113 units identified for 2017 delivery (as of Feb. 27) is a full 34.1% more than the 289,381 that opened to renters in 2016. 

The moderation in apartment market performance from the fourth quarter of 2015 through the end of 2016 would make such a dramatic increase in supply seem illogical. But the fact is that many of the new properties scheduled to be completed in 2017 started construction in early 2015, and some were likely permitted in 2014, the years in which the apartment cycle was at its peak.

But job growth slowed in late 2015 and 2016, reducing demand for apartments. Meanwhile, many of the jobs available were construction jobs, which contractors are having a hard time filling because workers have left for more lucrative, less burdensome work. The combination resulted in significant delays in the construction of new apartment properties, pushing the pipeline peak into 2017. The slow pace of permit issuance doesn’t help, either.

The peak has already been moved to the third quarter of 2017 because of further delays. Identified supply for the first quarter decreased by 6,153 units since the figures of Dec. 26, 2016, and second quarter deliveries have fallen by 7,704. Meanwhile, units scheduled for completion in the third quarter increased by 16,801 and fourth quarter expectations rose by 12,276.

So now, it seems that the bulk of the new supply delivered in 2017 will come in the second half of the year. Almost 51% of the units identified for completion this year are expected in the third and fourth quarters, with 28% in the third quarter alone.

The upshot: The expected decline in the supply chain will begin in the fourth quarter of 2017 and extend into 2018.

But the 159,918 units identified for 2018 completion as of Feb. 27 is likely nowhere near the number that will be delivered. Many more will be added as new properties begin construction and others are delayed from 2017. Given identified supply, permitting trends and historical factors, Axiometrics forecasts 319,541 units to be delivered in 2018, falling to 295,521 in 2019. Those are still healthy numbers, but still below the pre-recession long-term average.

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.

Of course, the recent downturn in apartment market performance could affect those forecasts, as developers may wait for the 2016-2017 supply to be absorbed before beginning planned new properties. Then again, they won’t want to be caught unaware when the next uptick occurs.


Dave Sorter

Dave Sorter


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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