The pandemic led to worker shortages, supply chain disruptions, and a global slowdown that delayed millions of construction projects in 2020 and 2021. As a result, fewer new apartment completions came online, exasperating the housing shortage in growing markets.
To make up for growing demand, 2022 saw the highest level of new authorizations on multifamily construction since 1999. Roughly 120,000 units were waiting to break ground at the start of 2022, which saw more apartments built than at any time in the last 50 years. Nationwide, an additional 420,000 new units are expected to go into service. Half of the top 20 metro areas have the highest level of construction in five years. From 2021, construction levels rose by 17%.
Despite economic concerns, supply chain issues, rising interest rates, and a looming recession, pent-up demand continues to drive the need for multifamily construction. The rapid rise in housing prices combined with escalating interest rates has renters postponing home buying, increasing demand for multifamily.
With a host of new apartment buildings in most major cities, to stay competitive, many existing complexes are upgrading units and, in many cases, updating technology to retain and attract tenants. Intelligent technologies can be as important as amenities when considering where to live.
Smart home technologies: Tenants see smart technology as an amenity rather than a luxury. Technologies add a level of convenience, increase safety, and improve work-at-home opportunities. Smart locks, thermostats, elevators, lighting, and video doorbells are now standard in many new construction projects and are gaining traction in multifamily building upgrades. Currently, 62% of apartments have some form of intelligent technology at the unit level.
In addition to increased demand from tenants, smart technologies can create more efficient management strategies and increase rent revenue by up to $40 per month in larger metro markets.
Electronic billing makes it easier for tenants to pay rent and provide cost savings for property management firms.
Environmental initiatives: The increased emphasis on global warming is driving demand for energy-efficient solutions that can increase tenant loyalty and reduce operating costs. Initiatives might include improved energy efficiency, water-saving devices, and upgraded appliances that use smart technologies or cut back on energy consumption.
Smart HVAC and water management programs attract tenants and serve as a health check for expensive systems. They can identify inefficiencies and notify management of leaks or reductions in power, serving as an early warning system. Maintenance can then address issues before it becomes a costly repair.
Forecasted Rent Growth
In 2022, rent growth was 9.4% in September, with a national occupancy rate of 95.9%. In the Sun Belt, nine of the top metro areas had rent growth of over 10%, with Miami, Orlando, and Nashville experiencing the highest increases of 13.2% or higher.
Despite the anticipated economic slowdown, the market performance within multifamily remains solid. Economists expect a year-over-year growth rate to be above 14%, despite a contraction in the economy. Due to the supply-demand dynamic for multifamily, industry experts expected demand to remain strong enough to withstand a moderate economic slowdown.
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