Over the span of nine years, the timeframe required for constructing multifamily buildings has expanded from 18 months to slightly over two years, influenced by challenges within the supply chain and pandemic-related work stoppages.
Data illustrates a notable increase in completion durations, particularly evident in the latter half of 2022 and the beginning of 2023. However, construction schedules also saw an uptick in 2016 and 2017, gradually gaining momentum until the onset of the pandemic. The rationale behind this pre-pandemic escalation and the sustained prolonged construction schedules is associated with a shift in the typology of apartments under construction. In 2015, garden apartment projects accounted for 42% of completed units. However, by the end of 2023, this proportion had diminished to 23%, as more intricate projects such as mid-rise and high-rise buildings took precedence in the development pipeline.
Garden apartment properties entail simpler and quicker development processes compared to multistory structures with elevators and parking facilities. In Sun Belt markets where construction can proceed year-round, a garden apartment property could be finalized in as little as 12 months. In contrast, mid-rise or high-rise developments may take between two and three years to complete, contingent upon location.
The Midwest region witnessed the most substantial surge in construction durations since 2014. Over the past nine years, the average construction duration for new multifamily projects in this region increased by 426 days, equivalent to approximately a year and two months. Mid-rise developments, exemplified by complexes like The Quin in the Chicago suburb of Schaumburg, comprising 373 units, have become more prevalent in markets such as Chicago, Columbus, Ohio, and suburban Indianapolis. Consequently, development durations throughout the Midwest have experienced a notable increase. The Western region continues to exhibit the lengthiest timeframe required for constructing new multifamily properties, a trend evident since 2014 and persisting through the end of 2023.
On average, it takes two and a half years for a new apartment project to transition from groundbreaking to completion in this region. While the multifamily sector grapples with oversupply concerns, prolonged construction lead times might impede a timely supply response once the surplus units are absorbed. If a significant quantity of nearing completion units fails to materialize upon market equilibrium, rent escalation could ensue once more. The current landscape suggests a decline in the number of units breaking ground over the past seven quarters, with only 72,000 units listed as under construction in the fourth quarter of 2023, significantly lower than the pre-pandemic average of 103,000 units.
Developers encounter challenges in initiating projects due to insufficient available construction financing, delays in permitting processes, and elevated material expenses. Should these conditions persist into 2024 and multifamily initiations continue to dwindle, supply projections for 2026 may fall short of the current projection of 232,000 units.