Supply pipeline remains strong, but rising interest rates and delays could slow new projects
Despite a slowdown in new multifamily construction, the development pipeline remains robust, with Yardi Matrix forecasting a steady pace of deliveries in 2025 before a gradual decline through 2027.
The number of newly completed units will increase by 3.3% in 2025, followed by 11.5% in 2026 before tapering off with a 4.3% rise in 2027, according to Yardi Matrix’s latest Multifamily Supply Forecast Research Bulletin.
While the number of units under construction has declined, activity remains elevated. Yardi Matrix tracked 1.17 million units under construction in Q4 2024, reflecting a 2.9% drop from the previous quarter and a 7.2% decline year-over-year.
More than 573,500 units are currently in lease-up, with the majority expected to be delivered in 2025, while the remainder will be completed in 2026 and early 2027.
“The decrease in the under-construction pipeline, however, is starting from a high level and falling at a much slower rate than its expansion from 2021 through 2023,” the report noted. “And in 2025 the still-large under-construction pipeline will deliver the second-highest amount of annual new supply since the 2008 financial crisis, trailing only 2024’s record volume.”
While deliveries remain strong in the short term, the number of new construction starts has dropped sharply. In the first three quarters of 2024, only 298,000 units broke ground – a 40% drop compared to the same period in 2022 and 2023. This slowdown will lead to reduced supply in 2026 and 2027, though some of the current under-construction projects will still be completed in that period due to longer construction timelines.
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According to Yardi Matrix, construction completion times have increased for all property types, with garden-style and mid-rise buildings experiencing the longest delays since 2015. This extended timeline is further contributing to a backlog of supply that will take time to clear.
The report attributes the slowdown in new development to higher-for-longer interest rates and tight financing conditions, making it difficult for developers to secure funding for new projects.
“For the longer term, the current forecast assumes a higher-for-longer Federal Reserve policy will keep short- and longer-term interest rates elevated. Continued tight new development financing combined with long development lead times will cause construction starts to remain at the same level in 2025 as seen in 2024, resulting in new supply bottoming in 2027,” the report concluded.
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