Expect Fewer New Apartments Next Year After Record-Setting 2023

Article originally posted on CoStar on November 9, 2023

After hitting a 40-year record high for completions of U.S. multifamily units this year at a projected 558,000, the apartment sector is expected to add approximately 440,000 units next year, a 21% pullback.

Even so, the projected total for next year would be still elevated, and well above the five-year pre-pandemic annual average of 360,000 units.

The projected decline in new units comes none too soon for investors and multifamily property owners given that over the past eight quarters supply additions to the rental apartment sector have outstripped demand by 515,000 units, pushing the national vacancy rate up from 4.8% to 7.2%. However, if absorption or the net change in occupied units continues to increase as it has throughout 2023, the slowdown in projected deliveries in 2024 could help to move the multifamily supply-demand imbalance back toward equilibrium.

The apartment construction forecasts for several markets that recently set record new supply additions call for a significant pullback in completions in 2024. Austin, Texas, for example, could see a 26% decline in new apartment units built next year after developers are expected to complete a record 21,000 units in that market in 2023.

While most of the new units added over the past two years have been in Sun Belt markets, other regions on the West Coast, such as Portland, Oregon and Los Angeles have also seen lofty totals added this year, but are expected to see far fewer units added next year. Portland is projected to see one of the largest percentage drops from 2023 to 2024, a drop of 48% with only 3,500 units set to open in 2024, while Los Angeles’ supply forecast in 2024 is for 7,600 units, a 41% decline from the 13,000 units expected to deliver in 2023. While the recent record construction of new apartments has been a boon for renters, the lower construction totals expected next year should stabilize rent growth in these markets which have seen rents fall.

A handful of U.S. markets are expected to buck the national trend and continue to add more apartment units next year and outpace the elevated 2023 levels. In Miami, the number of new apartment units is expected to increase from 7,000 this year to 12,000 in 2024. New apartment construction in Charlotte, North Carolina, is also projected to be higher next year, increasing from 12,000 units in 2023 to 15,000 units in 2024, with the possibility of setting a new supply record for the metropolitan area, which will continue to push vacancy higher and pressure rent growth in 2024. In Texas, San Antonio is expected to see a similar situation, with the number of new units in 2024 set to increase by 1,700 units, also setting up a weak rent growth forecast.

After three consecutive years of increasing multifamily supply each year, 2024 offers the national multifamily market a chance to catch its breath. The reduction in expected deliveries could combine with stronger demand to stabilize the market and mark the first step toward recovery.