It has been a couple of months since our last look at the new construction pipeline. Whether discussing apartment demand and the rent growth it has driven over the last year, or continued supply chain and labor difficulties, multifamily supply remains an important aspect of any conversation around the current state of the industry.

Additional complimentary market-level data can be found here.

Average Construction and Lease-up Duration

Before jumping into some construction pipeline numbers, it is helpful to understand the environment around new supply. Two metrics that provide some useful context are the average number of months from a construction start to a lease start and the average number of months from a lease start to stabilization. These two variables give a picture of conditions on the supply side (average construction duration) as well as on the demand side (average lease-up duration).

The more dramatic move in the two numbers has been on the construction duration side in recent years. For properties that began leasing in 2017 the average time from construction start to lease start was just over 13 months. For properties to begin leasing in 2021, the average was a little more than 17 months – a full four months longer than five years ago. Also unsurprisingly, the largest annual gains have come in 2020 and 2021. As recently as 2019 the average construction time was 14 months.

Whereas the average construction duration has increased for each of the last five years, the average lease-up time has neither increased nor decreased in consecutive years during the last five-year period. In 2017 the average number of months from lease start to stabilization was a little more than 11 months. For properties to stabilize in 2021 that number was at nearly 14 months. A two-month increase in average lease-up time is nothing to sneeze at certainly, but the gain was half that from the construction side even as the number of units to stabilize in 2021 far surpassed recent years.

New Units

ALN is currently tracking almost three million units across the construction pipeline nationally. Of those, around 430,000 are currently leasing but not yet stabilized. These are units that could be in fully completed properties in the midst of a lease-up, or units in properties that have begun leasing while construction is being completed. 11 markets around the country have at least 10,000 available units in non-stabilized properties, led by about 30,000 and 27,000 units in New York and Dallas – Fort Worth respectively. Washington DC is the only other market to hit the 20,000-unit threshold, and just so.

Compared to this time last year almost 350,000 units have been added to the total pipeline, with the bulk of the difference currently in the pre-construction phase. Approximately 75,000 fewer units are currently in a lease-up phase than this time last year, but the difference is lessened by almost 50,000 additional units that have started leasing even as construction is still being completed.

Units Under Construction

Nearly 700,000 multifamily units are currently under construction but not yet leasing around the United States. New York remains in a category of its own with more than 65,000 units currently in this portion of the pipeline. Other familiar names populate the top of the list as well, such as Washington DC with about 37,000 units and Dallas – Fort Worth with around 30,000 units under construction. Growth areas like Orlando and Austin each have more than 27,000 units in this phase of the pipeline.

Roughly 15,000 more units are currently under construction but not yet leasing that and this point in 2021. One difference is a 12,000-unit decline in New York while markets near the top of the list then and now such as Dallas – Fort Worth, Orlando, and Austin have seen a significant increase in units under construction. Another difference from a year ago has been markets like San Francisco – Oakland, Phoenix, and Boston falling out of the top 10 markets for units in this phase of the pipeline in lieu of areas like Atlanta, Denver, and Miami.

Takeaways

Net absorbed units nearly doubled new deliveries in 2021 and this provided a major boost for rent growth and precipitated a steady decline in lease concessions. January of this year provided a data point for slowing demand, while February marked something of a bounce back. Even with apartment demand expected to lessen compared to last year in the face of a range of headwinds, new supply will continue to be an important component in returning some balance to the multifamily sector. This is especially the case while single-family inventory remains so low.

A steady increase in the number of projects in the pipeline has been met with an equally consistent gain in the average construction time. Not only has the average construction duration grown in recent years, but the rate of growth has also continued to rise. That particular issue seems unlikely to be resolved this year, and it is not a given even for 2023.

A silver lining at the macro level for the industry may be that construction delays could somewhat smooth out the pace of deliveries while the effects of runaway rent growth, inflation, and any challenges associated with the unwinding of eviction moratoriums and other COVID policy responses play themselves out.

Disclaimer: All content and information within this article is for informational purposes only. ALN Apartment Data makes no representation as to the accuracy or completeness of any information in this or any other article posted on this site or found by following any link on this site. The owner will not be held liable for any losses, injuries, or damages from the display or use of this information. All content and information in this article may be shared provided a link to the article or website is included in the shared content.