Multifamily Construction Takes a Hit Amidst Steady Demand

Image from the broker list

Image from the broker list

The 4th Quarter of 2016 provided good and bad news. The national vacancy rate to end 2016 dropped to 4.1%, down from 4.3% in Q4 of 2015. Although vacancy rates are dropping, forecasters warn that multifamily performance does not reflect this metric.

Based off of preliminary data from the U.S. Census Bureau, total multifamily permitting activity fell 14.5% from October 2016 and 19.8% from a year prior. During November 2016, a total of 31,300 units were approved for construction. This brings year-to-date completions down -10.1% to 370,100 units.

Net absorption in Q4 hit its lowest level in more than two years. According to REIS’ Q4 2016 Apartment Trends report, the U.S. net absorption was 44,583 units in Q4, bringing the total for 2016 to 200,187 units (down from 201,478 units in 2015). New construction has officially slowed with only 195,734 new completions in 2016, compared to the 210,272 units completed in 2015. REIS predicts that completions will climb back up to 205,800 in 2017.

Although net absorption stands at a lower level, it has remained healthy even as new construction slows. This is due to the fact that prospective homebuyers have not abandoned the apartment market as rapidly as many had predicted during this stage of expansion. The number of family households grew by 0.5% in 2016 and 0.4% in 2015. According to the Census, the number of nonfamily households grew by 1.8%, down from 2.3% in 2015.

Click here for the full article from the The Broker List. Click here for more Front Street news.

Written by Front Street Intern Trent Slattery.