Multifamily construction starts remained high during the first half of the year, but new development activity is starting to slow.
The supply of new apartments will be up over the next two years but decline for the three subsequent years, according to the Yardi Matrix multifamily supply forecast.
Multifamily construction starts likely peaked late in the second quarter of 2023, and the first half of 2023 witnessed robust construction activity. The 312,950 units started in the first half of 2023 is close to the 317,428 units started in the first half of 2022.
Multifamily New Supply Forecast Q4 Vs. Q3
| Year | 4Q 2023 | 3Q 2023 | % Change |
| 2023 | 487,943 | 484,943 | 0.5% |
| 2024 | 536,145 | 506,574 | 5.8% |
| 2025 | 451,430 | 424,899 | 6.2% |
| 2026 | 377,622 | 401,065 | -5.8% |
| 2027 | 397,650 | 417,378 | -4.7% |
| 2028 | 403,683 | 426,722 | -5.4% |
Source: Yardi Matrix
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Yardi Matrix expects a mild recession will start in late 2023 or early 2024, and a weakening economy combined with tight financing and record levels of new supply will depress new construction activity late this year and for all of 2024.
Insiders' Insight
Separately, John Burns Real Estate surveyed 56 developers, investors and operators with a collective portfolio of 241,850 units. It found that post-COVID construction peaked and developers expect apartment construction starts to slow by at least 20%, with 25% of participants believing starts will slow by at least 50%.
Investors are pulling back because of high interest rates. Just 16% of those surveyed have sold a multifamily property in the last six months, and no one reported any acquisitions in the same timeframe. About 70% of the respondents said they don't plan to acquire a new property in the next six months.
Participants in the John Burns survey didn't agree on pricing levels. A minority believe the assets in their market are undervalued, and the rest are evenly split between thinking their assets are overvalued or priced fairly.
The survey also found that amenities are key to attracting tenants to new apartment communities, but they're shifting their focus from physical amenities like pools to services-oriented benefits like concierge services.
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