Commercial Construction Special Report
Pandemic Shrinks New Development Pipeline; A Modest Positive for Existing Real Estate Operators
Construction slowdown ripples across the real estate sector. Construction delays and a pullback in project starts stemming from the spread of COVID-19 will offer existing operators a respite. Most major metros have suspended nonessential construction activity and placed stringent requirements on projects allowed to progress. These mandates will slow the number of apartment and commercial buildings finalized this year. Multifamily deliveries will trail initial annual forecasts by 15 to 20 percent, with between 240,000 to 260,000 units expected to enter lease-up. Office and retail supply additions may decline by a more substantive 20 to 40 percent, translating to the delivery of between 60 million to 80 million square feet of office space and 25 million to 35 million square feet of retail space. The industrial sector, which faces fewer headwinds than other property types, will likely finalize between 210 million and 260 million square feet this year. In addition to slowing the completion of projects already underway, the economic shutdown and more stringent lending climate will likely stall projects that are still in planning, mothballing many of them until the full recovery takes hold. The overall reduction in deliveries and starts will minimize the flow of competitive supply for an extended period, supporting tenant retention and leasing efforts at existing properties. While the reduction and delay of new competing space will be a boon to existing properties, operators will still need to contend with a softened demand outlook that will weigh on performance metrics.