Apartment construction cranes dotted the D.C. sky throughout last decade's economic expansion and the early years of the pandemic, but new development has fallen sharply this year.

In the third quarter, multifamily construction starts in the D.C. area were at their slowest pace since 2010, according to Delta Associates’ Class-A multifamily report.

Just 891 units started construction across suburban Maryland, D.C. and Northern Virginia during the quarter, according to Delta's report, down from 2,712 units the same quarter last year.

Just one project totaling 112 units started construction in the District proper last quarter. In the third quarter of 2022, 10 projects totaling 3,617 units started construction in the District.

"Starts have come to a halt, basically," Delta Associates President Will Rich told Bisnow.

The Federal Reserve has been raising interest rates since March 2022 in an effort to curb inflation. This month, it held the base rate at 5.25% to 5.5%.

"We're seeing the full effects now of what's happened with interest rates because projects that were supposed to start construction are now being delayed," Rich said.

"On top of that, construction costs have continued to increase or remain elevated — less so for wood frame construction — but concrete construction has remained elevated and continues to rise, which has made development deals more difficult to pencil, causing a slowdown in construction," he added.

Typically in D.C. there are about 10,000 multifamily units that start construction in a given year, Rich said. During the first two years of the pandemic, those numbers were inflated, brought on by historically low interest rates and the federal government injecting capital into the economy.

But this year, the effects of inflation and construction costs are starting to show up in the start numbers.

"We went from 16,000 units in the 12-month period ending September 2022 to just 7,500 in this most recent 12-month period," Rich said. "So it's significant — more than [a] 50% reduction in starts from a year ago."

Fortis President George Chopivsky, whose firm develops multifamily properties in the D.C. area, said at Bisnow’s DMV Capital Markets event in September he expects the construction stall to persist for the next nine to 12 months.

"Right now, we're just focused on getting our next set of projects teed up, ready to go so that they're shovel-ready once we do get clarity on the horizon," he said.

The pace of deliveries is still high due to the construction boom in prior years. About 17,966 units are slated for delivery over the next 12 months, a 62% increase in deliveries from the year ending in September 2023. But that number will start to slow beginning the year after, Rich said.

"After 2024, we're expecting that delivery schedule to slow down significantly, given the slowdown we're starting to see now in construction starts for projects due to financing being more difficult to obtain as well as construction costs remaining elevated," he said.

In the long term, that could mean more favorable market conditions for landlords, who have faced rising vacancy rates and slow rent growth. Class-A rents across the D.C. metro area increased by 2.3% year-over-year in Q3, below the long-term average of 3.8%, while the vacancy rate was up 70 basis points from a year ago to 4.2%.

"It will be beneficial to projects that are going to be delivering in the 2025 time frame," Rich said. "There'll be less competition, and so that will assist with the lease-up with those new properties."