Multifamily Construction: Where is it Hot, and Will it Continue in 2019?
The outlook for multifamily housing construction starts in 2019 is mixed as the sector is seeing both opportunities for multifamily developers, as well as potential headwinds. Read on to see which markets are poised for multifamily development.
In 2018, multifamily housing and commercial construction starts totaled $212.4 billion, up 4 percent from the previous year, according to Dodge Data & Analytics, a New York-based construction data, analytics and software company.
The multifamily sector accounted for $95.1 billion, with the commercial category (including office buildings, retail, hotels, warehouses and commercial garages) totaling $117.3 billion, showing that apartment construction remains the lion’s share of overall new multifamily and commercial projects.
The brisk U.S. economic expansion to date “provided the backdrop for the healthy volume of commercial and multifamily construction starts that took place during 2018,” said Dodge Chief Economist Robert A. Murray. “A further boost came as a number of very large projects reached groundbreaking last year.”
A Mixed Outlook for Multifamily
The outlook for 2019 is a key question for decision-makers in multifamily development, investment and property management.
Murray pointed to possible headwinds for the sector, including:
• Diminishing benefits of federal tax law changes, which could impact multifamily occupancy rates and rent growth.
• Rising supply as projects started in the last few years reach completion.
• A more cautious lending environment, judging by a recent Federal Reserve survey of bank lending officers.
Robert Dietz, chief economist for the National Association of Home Builders, similarly expressed caution with his outlook. Multifamily starts will “level off” as developers continue to face shortages of construction workers, difficulties locating buildable lots and regulatory burdens that he characterized as excessive, according to Dietz.
What’s Happening in Major Metros
Even as the commercial-multifamily category rose overall in 2018, individual markets didn’t always fare as well. Markets that improved on 2017 included New York, Boston, Miami and Washington, D.C. Meanwhile, Los Angeles, Atlanta, Dallas-Ft. Worth, San Francisco and Seattle were among the markets experiencing construction slowdowns.
Here are snapshots of the three biggest markets:
• The New York metro area was the top U.S. market for commercial and multifamily starts in 2018, posting a 10 percent gain, compared with a 13 percent drop in 2017. The multifamily sector posted 2 percent growth in 2018, a slight gain over 2017.
Major New York multifamily groundbreakings in 2018 included:
• City View Court Square in Queens ($700 million)
• 85 Jay Street in DUMBO, Brooklyn ($600 million)
• Queens Plaza Park Apartments in Queens ($550 million)
• 11 Hoyt Street in Brooklyn Heights ($375 million)
• Journal Squared Phase 2 in Jersey City, N.J. ($250 million)
Starts in the Los Angeles metro area dropped 11 percent in 2018 to $7 billion, as both the commercial and multifamily sectors declined. Multifamily in 2018 dropped 11 percent, following an 18 percent slide in 2017 and an elevated level of activity the prior year. In 2018, six multifamily projects valued at $100 million or more reached groundbreaking, compared with 11 in 2017.
Major new starts included:
• Multifamily portion of the $411 million Cumulus Apartments mixed-use complex in Los Angeles ($363 million)
• Multifamily portion of the $400 million Los Olivos Apartments mixed-use complex in Irvine ($342 million)
Despite being a major gateway city, the Chicago metro market in 2018 didn’t perform strongly compared to others. Commercial and multifamily starts last year slipped 1 percent in Chicago, compared with 2017. The multifamily sector took a major hit, dropping 28 percent, compared to the prior year.
Three multifamily projects valued at $100 million or more reached groundbreaking in the Chicago metro in 2018 compared with five in 2017. The biggest start in 2018 was the $150 million adaptive reuse of the Windy City’s Tribune Tower as a condominium project.
These mixed results reinforce the importance of in-depth local market knowledge for opportunistic multifamily investors this year.