Some subways will float behind new multifamily buildings, while others will maintain pricing power.
Jay Parsons, chief economist at RealPage, recently analyzed the excess funds apartment construction. The reason is quite clear. The biggest wave of construction was experienced by multi-family buildings this year since 1970
Since the beginning of this year, multiple sources have told GlobeSt.com of their concerns that increased housing inventory could put significant downward pressure on rental rates as newer buildings tried to rent and could use a pricing strategy to do so, as landlords may have had no other choices. It’s better to earn less than to lose.
This helps explain why developers and multifamily investors need to understand where the greatest excesses may be and their potential negative impact. And where pricing power may be stronger in the face of less competition.
RealPage decided to look back at previous peak metro construction periods and use them as indicators of the market’s ability to absorb inventory. The framework, which they admitted is not perfect, provides some insight into whether a particular level of additional building appears to be beyond the capabilities of the market.
The company then divided the results into five groups: high supply; lots of deliveries, but not crazy; more than advertised; less than advertised; and minimum supply markets.
The first group, large supply, includes Austin, Raleigh, Salt Lake City, Nashville, Charlotte, Phoenix, Denver and Jacksonville. These are markets that have had little trouble absorbing high supply in the past and will likely continue to see huge demand, although they will likely face challenges in the short term, Parsons wrote. They will rent, but slower than most developers want. High supply metro also includes Huntsville, Colorado Springs, Sioux Falls, Port St. Lucie, Lakeland, Fort Myers, Provo, Boise, Asheville, Charleston, Savannah, Myrtle Beach and Pensacola. It’s okay in the long run. In the short term, not necessarily because tenants will have a choice and rents will fall.
A high supply but not crazy group includes Dallas/Fort Worth, Seattle, Atlanta, Tampa, Miami and Orlando. As they reach new heights in construction, they continue to add more slowly than a large group of providers because not every Sun Belt or Western city is building at an alarming rate.
More Than Advertised includes Philadelphia, San Jose, Washington, DC, Northern New Jersey (Newark), Long Island, Boston, Sacramento, San Diego, Los Angeles, Oakland and Minneapolis. They’re building a good amount, and some high-supply submarkets will feel challenged.
Less-than-touted metros like Houston, Chicago, Indianapolis, Columbus, Las Vegas, Kansas City, Portland, Riverside, Anaheim and Greensboro are not seeing a flood of new construction. There may be some oversupply, but it is doing relatively well.
Next, minimal supply markets are markets such as New Orleans, San Francisco and Cleveland where supply will remain tight.
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