This year, multifamily housing starts nationally are on pace to hit their lowest levels since 2014, a period marked by the national economy’s gradual recovery from the Great Financial Crisis. Year to date, multifamily deliveries have exceeded starts by 218,500 units, creating a substantial shortfall that signals a significantly reduced apartment supply by 2026.
The same trend is taking effect in Raleigh-Durham, where completions exceeded starts by 4,935 units. This is a key consideration for most apartment investment strategies today, explaining why many buyers are willing to accept Year 1 challenges such as softness or negative leverage.
As the current supply wave peaks in the Triangle, the future pipeline of multifamily construction is shaping up quite different. Of the identified units that are scheduled for delivery in 2024, nearly 42 percent of units have been delivered as of this writing. Of the approximately 18,600 apartments currently under construction across the Triangle, 13,343 of those are expected to be delivered by the end of third-quarter 2025, with a majority in Central and Southeast Raleigh.
However, new activity has slowed significantly — inventory growth by 2027 is projected to drop by more than 85 percent, plummeting to a 3.6 percent rate compared with the Triangle’s current 9 percent growth rate. On the supply side, permits for 9,760 multifamily units were issued in the 12 months ending in August 2024, down 2,623 units from the prior year’s sum.
The Federal Reserve’s recent and anticipated interest rate cuts, though in smaller doses, may gradually ease supply growth as we transition into 2025. While lowered interest rates could stimulate new construction, Raleigh-Durham is expected to grapple with a housing shortage.
Demand defies supply wave
The demand for apartments continued to be notably strong through the third quarter of 2024, even as a record-breaking number of new units entered the market.
In the past five years, including the COVID-era “recession,” Raleigh-Durham’s job pool has expanded to 13.5 percent, a solid number for a market with significant supply pressures. These positive economic trends continue to bolster apartment demand as the third quarter saw absorption surpass 4,600 units, bringing the year-to-date total to over 12,800 units, a 29-year record.
Demand is expected to remain robust in 2025, with a 28 percent increase forecasted. Meanwhile, the average monthly rent for these units was $1,505 as of September 2024. Apartment occupancy held steady year-over-year at 93 percent, after a slight increase at the end of the prime leasing season, returning to levels that are closer to historical norms. With both new deliveries and construction starts showing signs of tapering off, the stage is being set for future market stabilization and potential growth.
Rent growth to normalize
Since rent growth is closely tied to the balance of supply and demand, apartment markets experiencing the highest levels of new construction are also the most likely to see rent reductions. This dynamic is evident throughout the current wave of supply growth in the Triangle and becomes even clearer when analyzing trends at the submarket level.
The Central Raleigh, North Cary/Morrisville, Southeast Raleigh and South Cary/Apex submarkets recorded the highest annual supply, collectively comprising 50 percent of the overall market’s completions. In Central Raleigh, supply peaked in the third quarter of 2024, surpassing 14,740 units, while the submarket experienced its steepest rent reductions in a decade. Supply-heavy markets like Raleigh-Durham have experienced notable rent cuts over the past year, reporting reductions around 4 percent.
Forecasted in 2025 and beyond, Raleigh-Durham is one of the few markets in the United States that are predicted to achieve rent growth exceeding 3 percent. The worst of the pressures on pricing from new supply are likely behind us. These dynamics highlight a key trend impacting apartment investment strategies.
The shortfall created by completions outpacing starts indicates a looming supply constraint that could significantly affect market conditions by 2026. This imbalance is particularly relevant in high-demand areas like Raleigh-Durham, where the gap suggests a potential for heightened competition among tenants and upward pressure on rents over the medium term.
The slowdown in multifamily starts is critically important for investors to take note of because it directly influences future supply, market conditions and investment returns. Investors appear to be factoring this supply shortfall into their strategies and anticipating that short-term challenges, such as initial leasing softness or negative leverage, will be offset by stronger long-term fundamentals. The willingness to endure year-one challenges reflects confidence in the future rental growth and asset appreciation potential due to the anticipated constrained supply.
Trends like this highlight the importance of market-specific analysis when forming investment strategies. Raleigh-Durham remains a priority market for multifamily investment due to its continued job growth, population inflow and economic diversity. A constrained supply pipeline amplifies the opportunity to capture this demand over time, driving up rents and improving revenue for property owners and investors.
Additionally, investors that own or acquire properties now may benefit from increased pricing power as fewer new developments are available to compete with their assets.
— By Emily Bostic, multifamily transaction manager, Avison Young. This article originally appeared in the January 2025 issue of Southeast Real Estate Business.