With rising material prices and labor shortages beginning to impact development costs and completion schedules, and with ALN’s last construction pipeline check-in being a few months in the rear view mirror, now is a good time to get an updated picture of the new supply environment.

As always, only conventional properties of at least 50 units will be included. Additionally, with complete May numbers not quite in, all numbers will reflect the January through April time period.

New Units Delivered

Through the first four months of the year, around 130,000 new units have been delivered across the United States. This level of new supply represents a considerable increase from the approximately 105,000 new units delivered in the same portion of both 2020 and 2019. Apartment demand has been more than enough to meet these new units. Just more than 150,000 net units were absorbed – more than double that from the COVID-affected 2020 and well beyond the 116,000 units from 2019.

Two markets, Dallas – Fort Worth and New York, lead the way by a fairly wide margin in 2021 deliveries. DFW has added about 9,300 new units while New York has added around 8,300 units. Of the five markets with the most new supply so far this year, New York and Orlando are the areas where apartment demand has fallen short of the new supply. In Orlando, the delta was only about 500 units. For New York, the shortfall was a more concerning 4,200 unit deficit.

Under Construction

Projects in this phase of the pipeline are under construction but not yet leasing. At the end of April, there were approximately 650,000 units across the US in this phase of the construction pipeline. Not all of these units will be delivered in the next 12 months, especially given the current issues leading to prolonged construction times, but this volume of construction activity does reflect that new supply will not be winnowing any time soon.

Two markets in particular stand out in this phase as well. The New York metro area currently has more than 70,000 units under construction, by far the most in the country. This is down slightly from about 78,000 units back in February. But, for the most part, completed projects are being replaced by new projects fairly evenly. The other market with an especially large number of units under construction is Washington DC. More than 40,000 units are currently being built there; more than were under construction back in February.

New Construction Pipelines

ALN defines the new construction pipeline as all units in properties that are still in lease up, or under construction, or due to start construction within 2 years.  Interestingly, despite an increase in construction activity in secondary and tertiary markets, it is the largest markets that continue to dominate even on a percentage basis. There were nine primary markets at the end of April with total pipeline units totaling 20% or more of existing units in the market. For secondary markets that number was two, and for tertiary markets that number was four.

Takeaways

The headline metric so far in 2021 is the surge in apartment demand, but runner-up could be the state of new supply in the multifamily industry. 130,000 units delivered in the first four months of the year is comfortably beyond the level of recent years, and there is no slowdown on the horizon. Continued construction delays due to material cost inflation and labor shortages certainly represent a wild card in terms of where on the calendar deliveries will fall, but there is little question 2021 will be one of the more active years in recent memory for new units.

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