Multifamily Construction Stays Strong As Activity Slows For Other Asset Classes
Economic conditions are taking a toll on new building starts, though multifamily construction in the U.S. remained strong.
According to data from the U.S. Department of Commerce, multifamily construction rose by 15% in June over the month before, and it was up 16.4% compared to a year prior.
The boost was led by apartment and condo construction, which both increased in June, CoStar reported. Overall, construction of new units increased by just 1% from May, but levels were still their highest of the past year, according to the Commerce Department.
The number of condo and apartment buildings with five units or more that were authorized but have not yet started construction increased by 3.9% in the past month, marking an annual increase of 42.6%.
High demand for apartments across the country means multifamily construction is expected to stay strong, although it could slow as the year goes on according to Fannie Mae, one of the biggest mortgage lenders in the country.
Approximately 13.1% more permits for multifamily construction were issued last month than the month prior, an increase of 27.8% over 2021, according to CoStar.
According to Dodge Data and Analytics, the largest multifamily projects to start in June were a $450M mixed-use project in Brooklyn, a $425M residential building in Manhattan and a $369M mixed-use project in Austin, Texas, Construction Dive reported.
Outside of multifamily, however, most construction activity has slowed.
Inflation is already having an impact on single-family home construction, which Fannie Mae said reached its lowest level in two years in June as mortgage interest rate hikes cooled slow buyer demand, CoStar reported. Homebuyer confidence also dipped, reaching its lowest levels since May 2020, per the National Association of Home Builders.
Nonresidential construction also fell by 14% in June, Construction Dive reported. Starts for office, retail and warehouse construction dropped by 16%, manufacturing by 14% and public buildings, education and health institutions by 12%.
Industrial construction is particularly struggling, with entitlement and the construction process taking five months longer than it did pre-pandemic, according to data from Newmark reported by GlobeSt. While starts increased by 64% between 2019 and 2021 and tenant demand increased 120% during that period, deliveries increased by just 5.7%.
Nonbuilding construction starts showed a 13% increase in June, according to Construction Dive. That growth reportedly came from a solar project in Nevada, along with a transmission line in Utah and Wyoming.
Growth in nonbuilding and multifamily weren’t enough to offset faltering numbers in other asset classes. According to Construction Dive, the lag in nonresidential construction reportedly drove the overall construction market down 5%.
“Construction markets are getting jittery as the odds of recession increase,” Dodge Chief Economist Richard Branch told Construction Dive. “While projects are still moving through the planning process, the velocity has downshifted, reflecting uncertainties over how rising interest rates will impact the economy, construction material prices and ultimately, construction starts.”
In addition to inflation and interest rates, rising construction and labor costs are proving an obstacle to delivery. Construction costs were up 22% this May compared to a year prior, with labor shortages also hindering building works, GlobeSt reported.
Although a Fannie Mae market analysis for May said supply chain snags were becoming less of an issue for construction, CoStar reported, GlobeSt pointed to Newmark research indicating otherwise.
“Well-documented volatility still reigns in the construction materials supply chain, exacerbated by geopolitical conflict and pandemic-related shutdowns in Asia,” the Newmark report said. “Lead times for roofing materials, for example, are still 30-to-50 weeks out on average.”