Construction Momentum Varies Greatly Across U.S.

Multifamily development is still very active nationally and close to peak levels.

Completions of 259,600 units in the four quarters ending in Q2 2019, however, represented a 9.7% decline from one year ago. While the 259,600-unit total is the lowest four-quarter total in three years (since Q3 2016), it is still 7.5% above the five-year average.

CBRE Econometric Advisors forecasts the four-quarter trailing totals to rise over the second half of 2019 and first half of 2020, reaching a new peak for this cycle of 330,200 units in Q2 2020. After that, CBRE EA projects completions to slowly decline.

While I generally agree with this outlook, I expect the second half of 2020 to remain at peak levels of deliveries given the active development pipeline and only modest decline in construction starts this year. Completions should then slow in 2021.

Construction momentum varies significantly by metro, however. The extent to which industry players should be concerned about completions and potential oversupply varies greatly by metro (and by submarket).

Completions Close to Stable Across Tier I Markets

Tier I markets, as a group, had the smallest year-over-year decrease of multifamily completions among the three tier groups (-3.5%).

Construction slowed more noticeably in Tier II and Tier III markets, overall, with completions declines of 13.0% and 15.5%, respectively.

However, within all tier groupings, the markets exhibited significant variation.

Inland Empire & Seattle Lead for Largest Unit Gains

For the 66 markets analyzed, completions for 22 markets were higher on a year-over-year percentage basis for the year ending in Q2 2019, one-third of the total.

Another 32 markets had lower levels of multifamily deliveries. Completions were essentially stable in 12 markets.

Among all markets, absolute gains on a year-over-year basis were largest in Seattle (3,400 units), the Inland Empire (3,300), Tampa (2,400), Philadelphia (2,300), Miami (1,900) and Portland (1,700).

The largest percentage increases in multifamily unit completions among Tier I and II markets were in the Inland Empire, Ventura, San Jose, Tampa and Philadelphia. All of these markets experienced increases of 60% or more.

The leading Tier I and II metros for declines in deliveries were Orange County, San Diego, Baltimore, Nashville, Houston and Dallas, all with declines of 35% or more.

For Tier III metros, Birmingham, Colorado Springs, Hartford, Jacksonville and Detroit experienced the largest percentage gains. Many of the gains, however, were off a very low base, but are notable nevertheless.

By Jeanette Rice, Americas Head of Multifamily Research, CBRE.