If you're a developer or a real estate investor, you don’t need to read this article in the Wall Street Journal to appreciate the slowdown in new construction projects. It's not just multifamily. Storage development is slowing too; only the best deals are still getting done.
The WSJ article states that 2024 new apartment deliveries will be roughly the same as in 2023, with about 500,000 new units being built. That's unsurprising given that 2024 deliveries likely broke ground in 2022, the year rental rate increases were having their heyday. Those same projects likely started the predevelopment process in 2020 or 2021. It takes a long time from inception to income, especially for large multifamily projects.
New construction projects kicking off in 2024 are almost nonexistent, with just a fraction of the activity. The impact of this is that very few new multifamily projects start the predevelopment process of working through the design and land entitlements. This could mean that new construction starts in 2025 could be half of the starts in 2023. That will greatly impact contractors, architects, consultants, and bankers. Everyone who touches the development will be affected.
At this point, the pendulum will swing significantly. New multifamily deliveries will not keep up with demand, and rents will rise again. The cycle will start over. But this time, we can expect a bigger swing because activity has all but stopped.