Multifamily Begins To Feel Macroeconomic Pressures | Winter 2024

Despite California continuing to experience a housing shortage, in Northern California, 68% of Forecast panelists report no plans for new multifamily development in the coming 12 months, which can be attributed to high interest rates and rising construction costs.

Sentiment is more optimistic in Southern California, with 55% of respondents planning new development.

For new projects, multifamily developers are leaning into continued remote- and hybrid-work strategies, with developers listing in-home office and co-working spaces, as well as community-oriented spaces, as their top design considerations. Sustainability features are also top of mind for developers working on new multifamily projects.

“In recent years, the multifamily sector exhibited resiliency to many of the economic challenges impacting the broader commercial property market,” said Jennifer Jeffers, Senior Counsel at Allen Matkins. “However, in 2024, a significant decline in new construction activity is projected due to high interest rates, a scarcity of construction financing, and skyrocketing materials and labor costs. Although multifamily supply projections are very submarket specific, the overall demand for housing throughout California remains strong. As such, we expect to see construction levels begin to rebound in the next 12-18 months as supply and demand find equilibrium and as capital markets and interest rates ease.”

See more insights in the Winter 2024 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.