- Demand for multifamily units is helping absorb a large wave of new supply, reducing oversupply risks across U.S. markets.
- The construction pipeline is shrinking in key markets, with Austin and Nashville seeing significantly fewer new projects.
- San Jose and the Inland Empire lead in relative oversupply risk, but improving fundamentals suggest overall market recovery.
- No markets currently face more than five years of supply, down from several markets last year.
The U.S. multifamily market is stabilizing as demand rises and construction activity slows, as reported in Globest.
According to a new analysis by Cushman & Wakefield, the risk of oversupply that peaked last year is diminishing across most U.S. markets. This signals a broad recovery, although risks still vary by region.
Historic Demand Surge
More than 1M multifamily units were under construction last year, the highest on record, leading to concerns about oversupply as occupancy rates fell in many markets.
However, demand for apartments has rebounded strongly over the past year, while the pace of new construction has slowed, absorbing much of that risk.
Falling Construction Activity
Cushman & Wakefield noted that multifamily construction pipelines are shrinking in nearly all markets.
For instance, Austin’s construction activity dropped from nearly 19% of its inventory last year to 11%, and Nashville saw a similar decline from 15% to under 9%.
These declines have helped mitigate excess supply risks in some of the hottest post-pandemic development markets.
Higher Vacancies
Meanwhile, Austin and San Antonio saw their risk profiles increase due to rising vacancies combined with heavy new unit deliveries.
These markets may take an additional year to recover, assuming demand remains consistent. Other markets facing elevated oversupply risks include Miami, New York, and Charlotte.
Higher/Lower Risk
Using a formula that compares units under construction to historical demand, Cushman & Wakefield found that while some markets still face elevated risk, no markets have more than five years of supply remaining—a significant improvement from last year.
The Inland Empire and San Jose currently lead the nation in relative oversupply risk, with more than 3.5 years of construction left to be delivered.
However, these markets show divergent trends: the Inland Empire’s vacancy rates are higher than pre-pandemic levels, while San Jose’s vacancies are lower.
Conversely, markets like Minneapolis, Jacksonville, Louisville, Richmond, and Orlando have fewer years of supply remaining and face lower oversupply risks.
Why It Matters
While some markets still have significant construction pipelines, increasing demand suggests that the worst may be over for most U.S. multifamily markets.
If the economy avoids a recession and demand remains steady, Cushman & Wakefield expect oversupply risks to shrink, leading to improved property fundamentals and values, even in the face of higher interest rates.
