By Meghan Hall
After nearly seven successive years of increasing apartment deliveries, apartment construction in the United States began to decline in 2019. Now, with the arrival of COVID-19, there are more questions than ever as to how many apartments will be delivered in 2020—and where.
According to a recent study by RENTCafe, some markets such as Seattle, are following the national bell curve, seeing a large reduction in apartment construction. Others markets, such as San Jose and Silicon Valley, are bucking the trends and still seeing record apartment development despite uncertain economic conditions.
“This is an annual report we do on a yearly basis, and this year, we were particularly interested in seeing how construction was faring in the context of so many challenges. We wanted to find out what the scene is looking like nationwide and how some markets have managed to adapt during the lockdown months,” explained RENTCafe Editor and Researcher Florentina Sarac. “There is a visible slowdown in construction that actually started a few years back. Although we noticed a slower rhythm starting with 2019, with the onset of the pandemic, the downward trend only got worse.”
New apartment deliveries peaked in 2018, when about 345,000 units were delivered to market. In 2019, a slowing in the industry had already begun, and 321,000 units were delivered. In 2020, there are a projected 283,114 units queued up for delivery, a 12 percent decrease when compared to 2019. The pace of construction was already beginning to slow, notes RENTCafe, due to a number of factors aside from coronavirus: shortages of construction crews, rising construction costs, funding and permitting timelines.
“The immense number of deliveries and strong competition, coupled with rising construction costs, workforce shortage and difficulty in accessing financing might result in developers pulling back in the future,” stated Sarac. “Some of these signs were already visible last year when apartment construction slowed down nationwide.”
Metros that will see fewer apartment deliveries this year include San Francisco, which will see a decrease of 11 percent, as well as Seattle, which will see apartment deliveries decline by 29 percent. During the first half of 2020 Seattle saw 1,205 apartment deliveries and is expected to see 8,261 new units by year’s end. San Francisco will see about 5,925 units completed. Los Angeles will see a decline of about 30 percent, but will still bring 9,125 residences to market. Some metros, such as Denver and Miami, are expected to see an even slower 2020, with their new apartment stock declining by 51 percent and 53 percent, respectively. Denver is expected to deliver 5,695 units, Miami 5,840 units.
Just seven of the 99 metros RENTCafe examined are expected to increase deliveries in 2020. Most impressively is San Jose and the South San Francisco Bay Area, which despite all odds is doubling its apartment construction in 2020. In 2019, the metro delivered 2,900 units to market; in 2020, that number is expected to jump to 5,800 units. Deliveries in San Jose have reached a five-year high, which RENTCafe describes as an “achievement.”
“There were some expectations for San Jose to up its game given the high level of demand in an area that didn’t build as many apartments as it should have in past years. The reason why it’s been able to thrive this year, compared to other markets, is that the tech industry wasn’t as affected as others,” Sarac emphasized. “Boosted by its tech-anchored economy, San Jose continues to be well-prepared in the face of an economic fallout, therefore managing to continue building more than other areas.”
The other metros expected to see an increase in deliveries include Boston, where more than 8,700 units are projected for delivery, an increase of 30 percent. Trailing not far behind are Philadelphia, Penn., and San Antonio, Texas, with increases of 23 percent, or about 4,400 units, and 20 percent, respectively.
The full impacts of current market conditions on apartment deliveries largely remains to be seen, and COVID-19 could expedite trends that were already in place prior to the start of the year.
“This downward trend is somehow similar to the 2008 crisis, given that it’s going to be a while until we see the effects of the current pandemic, most probably in the next few years,” said Sarac. “However, the difference is that certain construction projects have already gotten postponed due to the pandemic and the factors mentioned above, which might lead to us seeing the effects sooner.”