The Q2 2020 NAHB Home Building Geography Index reveals a notable multifamily construction shift to the suburbs/exurbs.

Data from the Q2 2020 NAHB Home Building Geography Index shows a notable multifamily construction shift to the suburbs/exurbs. During the first quarter of 2020, over two-thirds of all multifamily permits were concentrated in higher-density markets. However, after COVID-19 hit in the second quarter, the balance changed, shifting to lower-density markets, including exurbs of large metros and smaller metropolitan areas, says Litic Murali of NAHB’s Eye on Housing blog.

For the second quarter, the multifamily HBGI regional geography posting the highest year-over-year gain (on a four-quarter moving-average basis) was the exurbs at 27%, with suburbs of small metro areas, rural markets, small towns, and core counties of small metro areas trailing at still positive growth rates of 26%, 19%, 9%, and 8% rates respectively. Moreover, exurbs of large metro areas were the only region to record an increasing construction growth rate when moving from the first quarter to the second (increasing from 13% to 27%).

As a result of these changes, the market share for multifamily construction in the broad set of low-density areas (exurban areas of large metro markets, small metro core and suburbs, small towns, and rural markets) increased from 32.9 percent a year ago to 34 percent.

These market shares are slow to change, thus making a one-percentage increase significant and noteworthy. As shown above, quarterly changes for the low-density multifamily residential construction market share have been small, with levels ranging from 30.5% to just above 34.0% for the history of the HBGI. What is interesting to note, then, is the standard deviation-scaled changes of the data. For Q2 2020, the change was equal to 1.18 of the historical standard deviation, making the Q2 2020 shift to lower density markets a notable shift for the series.


Source: Multifamily Executive Posted on: September 15, 2020


Developers will likely delay starting new apartment projects until they see strong employment growth.

Some lucky multifamily developers will start work on new apartment projects at the perfect time, as the U.S.  begins to recover from the economic crisis caused by the COVID pandemic.

They will likely pay far below last year’s prices for development sites. They should have an easy time negotiating with construction contractors. Their apartment units will open just as rents begin to rise again. That time— the right time to start new multifamily projects —is still months or even years in the future, according to many developers and economists.

“If I’m a developer, I am probably waiting until the first part of next year to make a commitment,” says John Sebree, senior vice president and national director of the multi-housing division with brokerage firm Marcus & Millichap. “Multifamily will come out of this in much better shape than the rest of the economy… But we’re going to be going through this for a while.”

The number of new apartments that developers will begin to build over the next few years might be less than half that of the years immediately prior to the pandemic, according to Greg Willett, chief economist for RealPage Inc. a provider of property management software and services. “There’s certainly an interruption in development right in front of us,” he says.

According to the third edition of the  National Multifamily Housing Council (NMHC) COVID-19 Construction Survey  (conducted between May 11 and May 20), 53 percent of surveyed developers reported delays in their construction projects, though delays tied to construction moratoriums began to ease as states have relaxed shelter-in-place restrictions. Seventy-eight percent of those experiencing construction delays also reported a pause in project starts, an 8-percentage-point increase compared to the survey conducted in April.

In addition, the number of respondents seeing materials price increases rose to 17 percent from 5 percent in April. On the positive side, seventy percent of survey respondents reported that they were not impacted by labor shortages.

Developers struggle to finish and lease thousands of new apartments

A project that started construction today probably would not open its doors for a least a year. But a year will probably not be long enough to avoid impact from the damage to the U.S. economy caused by the coronavirus.

“In the best-case scenario, a project that begins construction today would open into a recovering economy,” says Andrew Rybczynski, managing consultant with research firm CoStar Group. “They would likely still face elevated vacancy rates due to the supply overhang expected to [be delivered] through the remainder of this year and much of the next.”

Many apartment developers are having a hard time completing projects they started building before the crisis caused by the coronavirus—much less starting new ones. These developers are likely to complete a total of 170,000 to 240,000 units in 2020. “Back in January 2020, we thought they would complete 300,000 units,” says Sebree. “A lot of the construction process slowed as the result of the pandemic.”

Many developers reduced the number of construction workers they hired, for example, to avoid crowding workers together on sites and potentially spreading the virus.

In addition, nearly one-third of developers (32.1 percent) report that they had to halt construction because of state and local government mandates, according to a survey of 461 members of NAIOP, the Commercial Real Estate Development Association, conducted between May 18 and 20. (NAIOP used to stand for the National Association for Industrial and Office Parks, though it long ago expanded to include apartment developers.) In addition, one-in-five developers (19.1 percent) suffered through delays or shortages of construction supplies in May, according to the NAIOP survey. The figure was down from nearly a third (31.1 percent) in April.

However, all of the new apartment projects now underway are likely to open eventually, expanding the country’s available number of units by 4 percent of the existing inventory, according to CoStar. “If you broke ground, you can’t stop construction halfway,” says Sebree.

Fewer developers likely to start construction this year

When they finally open, the new apartments begun before the crash will have to deal with a shaky economy. “We do not anticipate a fast clip back to full employment,” says Rybczynski. “History suggests that the U.S. will experience elevated unemployment for some time.”

Many developers will probably hesitate to start to work on new projects while so many of their peers still struggle to finish or lease-up new buildings. In the first quarter of 2020, many new apartment properties struggled to find tenants willing to sign leases. “Further struggles would slow construction starts of new apartments more,” notes Rybczynski.

Even among developers willing to plunge into new projects in May 2020, nearly two-thirds (62.3 percent) reported delays in securing permitting or entitlements, according to the NAIOP survey.

The last time the U.S. economy collapsed into a recession, developers also started construction on fewer apartment units. “Back in the Great Financial Crisis, multifamily building dropped about 60 percent, sliding from roughly 190,000 market-rate units delivered in 2008 to a low point of 78,000 units finished in 2011,” says Willett.

Once apartments that started construction before the pandemic are completed and rented, the apartment sector should once again benefit from the need for housing that has been consistently strong in prior cycles. “Prior to this pandemic,  we were dealing with a housing crisis,” says Sebree. “The underlying fundamentals will remain very, very strong.”

As developers place their bets on when to resume building, they are likely to focus on the monthly employment numbers.

“While we’ve lost more jobs in the past few months than we did back in 2008-2009, this recession could be shorter in duration,” says Willett. “A quick return of economic growth could get the building started again. On the other hand, if the spread of COVID-19 intensifies later in the year and the economy continues to downsize, a 60 percent pullback in construction is probably the minimum.”

The hot markets of the future

Developers and economists are already trying to guess where the best apartment development markets of the future might be. “There’s good reason to think that some of the key Sun Belt markets that led the country’s apartment construction pace during the past decade will be the first places to get back to some form of business as usual,” says Rybczynski.

Meanwhile, some economists are now less enthusiastic about coastal gateway cities, especially New York, San Francisco, Seattle, Boston, and Los Angeles.

“If where we live isn’t tied to where we work to the degree seen historically, the most expensive areas of the country could lose some of their appeals, especially in the zones where density is the highest,” says Willett. “Further development could be deterred if bans on evictions of those not paying rent are extended over and over again, and if there’s more movement to put in place rent growth restrictions.”


Source: National Real Estate Investor Bendix Anderson | Jun 18, 2020

Retail developers will take a step back this yearRetail developers will take a step back this year

Demand for retail space has rebounded in the Chicago area, but being a retail developer still isn’t what it used to be.

Developers and retailers are expected to complete nearly 2.1 million square feet of shopping center space in the region this year.

That’s down 14 percent from the 2.4 million square feet finished in 2014 and well below the average of about 4.3 million square feet delivered annually between 1989 and last year.

Even though the economy is improving and consumers are benefiting from lower gasoline prices, retail chains that open the kind of big stores that allow real estate firms to launch new developments have largely maxed out in the Chicago area.

“Going forward, we’re going to see things in the 2 million-square-foot range,” said Andy Bulson. “The reason for that is larger anchor tenants like Target and Kohl’s, around which shopping center development was completed over the last 15 years—their programs are complete.

“We need some new retail concepts. Is there somebody out there that’s going to be the next Target or Kohl’s? I don’t know. We really could use somebody like that to drive development.”

Another brake on retail development, Bulson added, is the opportunities retailers have to fill in existing spaces left empty after chains shuttered stores. Dominick’s exit from the market is the most dramatic example, but there are also Kmarts and other stores sitting vacant.

Grocery stores will anchor nine of the 11 shopping centers expected to be completed this year. Mariano’s Fresh Market will open in five of the nine centers with grocers.

While this year’s expected total of nearly 2.1 million new square feet is double the low in 2011, it’s less than a fourth of the 8.4 million square feet of space builders and retailers added in 2007, the peak year for new retail projects in the market.


“I don’t see anything in the foreseeable future that gets us back to those kinds of numbers,” said Gary Pachuki, principal at Chicago-based development firm IBT Group, referring to the volume of new construction before the crash.

In the current market, retail developers are largely focusing on smaller projects, seeking to work with the grocery chains that are expanding and staying on the hunt for development sites in the city, Pachuki said. It’s a competitive environment to find parcels that work.

“It’s a harder slog to find deals. People are going to start finding deals in different areas, because the housing market is changing,” Pachuki said, mentioning emerging neighborhoods in Chicago like Pilsen and Logan Square. “It’s going to be difficult to find that five acres of land.”

IBT is part of ventures developing two new shopping centers. One is a 150,000-square-foot project at 43rd and Pulaski Road in Chicago’s Archer Heights neighborhood that will feature a Ross Dress for Less store, a PetSmart and other tenants. The other is a 90,000-square-foot development in Evergreen Park anchored by a Mariano’s Fresh Market.

Mid-America’s forecast calculates the amount of new square footage opening in shopping centers with at least 40,000 square feet. The report covers new developments and expansions of existing centers by real estate firms or retailers. It doesn’t include outlet malls.

Among the new shopping centers expected to open in 2015:

• The approximately 360,000-square-foot New City development at Halsted Street and Ogden Avenue near the Lincoln Park neighborhood in Chicago.

• A 195,000-square-foot property anchored by Meijer at Rollins Road and State Route 83 in far north suburban Round Lake.

• A 100,000-square-foot development anchored by Mariano’s at Skokie Boulevard and Dundee Road in Northbrook.

Source: Chicago Real Estate Daily January 26, 2015 Micah Maidenberg