Multifamily construction remains strong as activity slows for other asset classes
Economic conditions are weighing on new building starts, although multifamily construction in the United States remained strong.
According to data from the US Department of Commerce, multifamily construction rose 15% in June from the previous month and 16.4% from a year earlier.
Archives Bisnow/Andrew Martinez
A building under construction in Mattapan in September 2021.
The boost was led by construction of apartments and condos, both of which increased in June, CoStar reported. Overall, new unit construction was up just 1% from May, but levels were still at their highest level of the past year, according to the Commerce Department.
The number of condo and apartment buildings with five or more units that have been approved but have not yet started construction rose 3.9% in the past month, marking a year-on-year increase of 42, 6%.
Strong demand for apartments across the country means multifamily construction is expected to remain strong, although it could slow as the year progresses according to Fannie Mae, one of the nation’s largest mortgage lenders.
According to CoStar, about 13.1% more permits for multifamily construction were issued last month compared to the previous month, an increase of 27.8% from 2021.
According to Dodge Data and Analytics, the largest multi-family projects to start in June were a $450 million mixed-use project in Brooklyn, a $425 million apartment building in Manhattan and a $369 million mixed-use project. in Austin, Texas, Construction Dive reported.
Outside of multifamily, however, most construction activity has slowed.
Inflation is already impacting single-family home construction, which Fannie Mae said hit a two-year low in June as rising mortgage interest rates cooled sluggish buyer demand. CoStar reported. Homebuyer confidence also fell, hitting its lowest levels since May 2020, according to the National Association of Home Builders.
Non-residential construction also fell 14% in June, Construction Dive reported. Housing starts for offices, retail and warehouses fell by 16%, manufacturing by 14% and public buildings, educational and healthcare facilities by 12%.
Industrial construction is particularly struggling, with duties and the construction process taking five months longer than before the pandemic, according to Newmark data reported by GlobeSt. While housing starts increased by 64% between 2019 and 2021 and tenant demand increased by 120% during this period, deliveries only increased by 5.7%.
Nonbuilding construction starts posted a 13% increase in June, according to Construction Dive. This growth would come from a solar project in Nevada, as well as a transmission line in Utah and Wyoming.
Growth in the non-building and multi-family sectors was not enough to offset the shaky numbers in other asset classes. According to Construction Dive, the backlog in non-residential construction caused the overall construction market to fall by 5%.
“Construction markets are getting jittery as recession risks increase,” Dodge chief economist Richard Branch told Construction Dive. “While projects are still being planned, the speed has slowed, reflecting uncertainties about the impact of rising interest rates on the economy, building material prices and ultimately construction start-ups. building.”
In addition to inflation and interest rates, rising construction and labor costs are proving to be an impediment to delivery. Construction costs rose 22% in May from a year earlier, with labor shortages also hampering construction work, GlobeSt reported.
Although a Fannie Mae market analysis for the month of May indicated that supply chain issues were becoming less and less of an issue for construction, CoStar reported, GlobeSt pointed out that Newmark’s research indicated opposite.
“Well-documented volatility still reigns in the building materials supply chain, exacerbated by geopolitical disputes and pandemic-related shutdowns in Asia,” the Newmark report said. “Delivery times for roofing materials, for example, are still 30 to 50 weeks on average.”