Architects see another month of flagging business, even as rents tick up

The proverbial “canaries in the coalmine” for the construction industry, architects nationwide are reporting May as a fourth straight month of 2024 in the red.

The most recent American Institute of Architects/Deltek Architectural Billing Index (ABI) documents another decreasing month of new work coming into firms. 

Considered a leading indicator of overall market conditions to come, it’s not good news for the residential, institutional, or industrial real estate sectors.

Multifamily construction starts nationwide are the lowest they’ve been since April 2020. 

Architects’ “business-on-the-board” is showing no reversal of that trend. Yet the indicators for investors in the multifamily sector are not all bad. 

Rent concessions are abating, and rents are up month-over-month and year-over-year for the Salt Lake City market. Let’s take a look at some of the recent data. But first, the bad news.

Architects’ business down across the board

Kermit Baker, AIA’s Chief Economist, concluded in AIA/Deltek’s latest report that design services for Institutional RE declined the most precipitously, “While fewer firms with commercial/industrial and multifamily residential specializations reported a decline in billings in May than in April.”

Courtesy AIA/Deltek

It’s important to note that everyone, not just Institutional, is seeing contraction. Baker wrote, “A majority of firms of both specializations [Industrial and Multifamily Residential] still reported weak business conditions.”

Multifamily construction starts continue to decline

Nationwide, new construction in the multifamily sector, which includes apartment buildings and condos, declined 6.6% in May to an annualized 295,000 pace.

The National Association of Home Builders (NAHB), using data from the U.S. Census Bureau and HUD, notes that it’s the lowest pace for apartment construction since April 2020.

“The three-month moving average for multifamily starts is the lowest since the fall of 2013 as the multifamily development deceleration continues,” said NAHB Chief Economist Robert Dietz.

The ratio of multifamily completions to starts (the total number of apartments completing construction compared to those starting construction) was 1.8 in May, tied with April for the highest ratio since Covid. “This ratio was 0.6 in April 2022 when many more apartments were starting construction compared to finishing construction, demonstrating the significant reversal for the multifamily construction pipeline,” stated Dietz.

Yet rents are up in Salt Lake City metro

For context, here are the top ten highest rent markets in the country, average rent for a one-bedroom:

According to Zumper’s National Rent Report, the nationwide average rent for one-bedrooms increased 1.5% this June to $1,526, while two-bedrooms grew 1.9% to $1,900. 

Salt Lake City rents for one- and two-bedroom apartments sit right in the middle of the nation’s top 100 cities for most expensive rent. 

At number 52, Salt Lake City’s rents for one-bedrooms grew 3.1% in June to $1350, while the year-over-year number is that same 3.1% rise. Two-bedroom apartments rose to an average of  $1770 in June, a 2.3% month-over-month increase, registering a 7.9% hike year-over-year.

This, despite multifamily market watchers reporting widespread rental concessions due to increased supply in the Salt Lake market. Instead, rent decline may be reversing. Realpage shows concessions down since April in the Salt Lake City-Ogden-Clearfield market. Rent tradeouts (concessions made on lease renewals) are also trending down since March.

What remains clear through the fog of data is that the housing shortage isn’t over. Even as the cost of land, credit, and construction continue to rise, demand remains constant in the top 100 US markets. 

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Posted by Luke Garrott

Luke Garrott, PhD, has published in The Salt Lake Tribune and the Deseret News, and written features for the Salt Lake City Weekly City Guide and The West View. A former two-term councilman in Salt Lake City's District 4, he lives in Downtown Salt Lake City and grew up in the Chicago area.