Multifamily permit activity has been unpredictable, rising 17% one month and then falling 8% the next. An analysis of year-wide 2010 permit data shows where 2011 development activity is likely to be concentrated. The Twin Cities area is ranked in the top 20 for projected apartment construction.
Based on sharp permit increases in many major markets, the rise in demographically favored multifamily construction may be imminent. Some of the greatest growth for households within the U.S. over the next ten years will be in the 25 to 34 age group that’s more likely to rent apartments. On the other hand, multifamily construction has been so depressed that an increase in activity isn’t really a surprise.
Marcus & Millichap, a research and brokerage firm, forecasts that vacancies and rents will increase in 44 apartment markets in 2010. The firm says that years of very light construction activity has made apartments scarce, allowing landlords to charge higher rents and helping owners recover lost value in their apartment portfolios.
Its not that easy just to build new multi-family dwellings, though. Owners and developers constantly weigh the cost of building new apartments against buying older buildings and remodeling them, or even refurbishing in their current buildings to justify raising rents. The availability of financing is another critical component in decisions to develop new apartments.
Metro areas on the coasts such as New York City, Los Angeles, Seattle and Washington, D.C. are in the top 10 multi-family residential development hot spots in 2011. Activity is also picking up in other traditionally large apartment markets with strong business centers such as Houston, Dallas and Chicago. The Minneapolis – St. Paul Twin Cities area was ranked at #14, with 1,921 permits, an increase of 85%.