As the U.S. apartment market gears up for a record-breaking year, with an estimated 518,108 units expected to be delivered by the end of 2024, investors are faced with a unique opportunity to understand where this supply surge is concentrated and what it means for future returns. According to RentCafe’s latest report, nearly 60% of these deliveries are clustered in just 20 metro areas, painting a clear picture of where developers are placing their bets.
The Heavyweights: New York City and Dallas Lead the Charge
For the third consecutive year, New York City stands as the undisputed leader in new apartment deliveries, with an estimated 32,935 units set to come online in 2024. The city’s unyielding demand, driven by a chronic housing shortage and high population density, makes it a magnet for developers, particularly in Brooklyn, where nearly 10,000 of these new units will be concentrated. Investors eyeing New York should note that this influx of supply, while substantial, is unlikely to saturate the market given the ongoing housing demand and the city’s appeal to higher-income renters.
Dallas, trailing just three units behind New York, is another powerhouse in the multifamily construction arena. The metro’s strong population growth, business-friendly environment, and affordability have made it a prime destination for both new residents and corporate relocations. For investors, Dallas offers a compelling combination of high demand and robust infrastructure, making it a market ripe for stable, long-term returns.
Southern and Western Metros: The New Frontiers of Development
Beyond New York and Dallas, a significant portion of new deliveries is concentrated in Southern and Western metros. Austin, Phoenix, and Atlanta, ranking third, fourth, and fifth respectively, are seeing substantial growth. Austin’s tech-driven economy, Phoenix’s affordability, and Atlanta’s status as a regional economic hub are key drivers behind their construction booms.
Houston, Washington, D.C., and Charlotte also feature prominently on the list, reflecting strong local economies and ongoing population growth. These metros present investors with opportunities to capitalize on markets that combine economic resilience with a steady influx of new residents.
Florida’s Steady Growth
Florida continues to be a hotbed for apartment construction, with Miami, Tampa, and Orlando all ranking within the top 15 metros for new deliveries. Miami, with its international appeal and dynamic job market, is particularly noteworthy. Investors should be aware that while Florida offers strong population growth and a favorable tax environment, the competition among new developments may impact rent growth in the short term.
A Shift on the Horizon: The Impending Slowdown
While 2024 is shaping up to be a banner year for apartment deliveries, the outlook for the coming years tells a different story. RentCafe projects a significant drop in new completions, with only 440,000 units expected in 2025—a 15% decrease from 2024—followed by even steeper declines in 2026 and 2027. Higher borrowing costs, driven by the Federal Reserve’s interest rate hikes, are making it more challenging for developers to initiate new projects. This anticipated slowdown in supply could lead to tighter markets and higher rents in the future, particularly in metros that are already seeing a high concentration of new units.
High-End Focus: Catering to Middle- and Higher-Income Renters
The majority of the new apartments delivered in recent years, and those currently under construction, are high-end projects designed for middle- and higher-income renters. This trend reflects developers’ focus on securing returns in a competitive market. Investors should consider the implications of this focus, as it may limit the pool of potential tenants and necessitate a careful evaluation of local income demographics.
Looking Ahead: The Long-Term Demand for New Apartments
Despite the near-term supply surge, the U.S. faces a long-term housing challenge. The country needs 4.3 million new apartment units by 2035 to address ongoing demand and affordability issues. Based on current projections, there will still be a shortfall of approximately 1.43 million units by 2035. For investors, this gap signals ongoing opportunities in the multifamily sector, particularly in markets where demand is expected to remain strong.
Comments