Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion.

Supply Cliff

I’ve never seen so much attention from industry professionals on the supply of multifamily units. “Location, location, location” is quickly being replaced by “supply, supply, supply.” If Bill Clinton were an apartment investor, he might say, “It’s the supply, stupid.”

The multifamily industry went big on the Sunbelt—rightly so, the demographics remain strong—and an oversupply of units has caused rents and occupancy to fall. Many are now waiting for that excess supply to burn off, as long as demand remains steady, so their properties can start growing again.

I came across the chart below on LinkedIn this week, courtesy of RealPage Chief Economist Carl Whitaker.

The chart is interesting because of the huge drop-off in quarterly apartment completions, as shown by the red line. It’s the biggest quarter-over-quarter decline since Q1 2011. If you’re looking for a sign that supply is slowing, here’s a big one.

Not So Fast

Unfortunately, the red line doesn’t represent a percentage change. That would be even more powerful. Instead, it represents the actual change in apartment units. From Q4 2024 to Q1 2025, deliveries dropped by 37,000 units. While a good sign, it still appears that close to 120,000 apartment units came online during Q1. That’s higher than 90% of the quarters over the past 30 years. So, we’re still dealing with a sizable volume of apartment units to lease up.

Cause for Optimism?

While the chart shows the change in actual units, the percentage change is actually quite large. Looking at each major geographic region, every one had a decline in deliveries of greater than 21%.

Not only did the South (predominantly Sunbelt markets) see the biggest decline in units, but it also had the steepest percentage drop. Interestingly, the Midwest and Northeast—regions that already had the lowest levels of new supply—saw even further reductions. That’s a key reason why those markets are experiencing real rent growth right now.

The Sunbelt will get its rent growth back if these declining supply trends continue and demand remains strong. Anecdotally, I’m seeing signs of improvement: occupancy is ticking up, and renewal retention remains strong. As those metrics improve, so does net operating income (NOI). And as NOI rises, property values follow.

With the 10-year US Treasury holding around 4.5%, NOI growth is essential—because cap rates aren’t coming down in this environment. The only way for cap rates to drop, outside of a reduction in interest rates, is above-average rent growth and the return of value-add renovation strategies.

That’s why supply is the focus today. It sets the direction for rent growth, and ultimately for property values.