By Thomas P . LaSalvia , PhD , and Victor Calanog , PhD , CRE
BUILDING PROGRESS
Comparing construction figures from the first half of 2020 with early projections shows COVID-19 ’ s true impact .
Substantial levels of new construction
were set to hit markets across the United States in 2020 — but this is a banner year no more . Supply increases for both multifamily and industrial were ready to aid in reducing housing shortages and add capacity and efficiency to a logistics industry facing upheaval due to shifting shopping habits .
But when the calendar turned to February , everything changed . By April , the pandemic and subsequent economic shutdowns caused construction projects to dramatically decelerate , if not halt completely . REIS survey data allows us to examine the magnitude of the short-term effects on inventory by observing the deviation in pandemic construction activity from pre-COVID-19 forecasts .
EARLY EXPECTATIONS VS . REALITY The pipeline of construction activity was , and remains , quite full . The pandemic has undoubtably slowed the rate of completions , but projects where substantial progress had
U . S . Construction Completions : Forecasts vs . Reality
Apartment Units already been made will be finished , albeit with delay . The current level of completions in relation to pre-pandemic expectations is a key to understanding delays and their impact on the timing of new supply .
At the sector level , multifamily was readying for record growth in 2020 . Over 300,000 units were to come online by year end , a nearly 3 percent increase in existing stock . For context , the next highest level of annual activity since 1999 ( when REIS began tracking national level statistics ) was 265,000 units in 2018 . Further , the average annual growth in the previous 20 years was only about 150,000 units . For actual 2020 outcomes , with just 73,899 units built though the first half of the year and preliminary data from 3Q2020 exhibiting a similar pace , completions will not come anywhere close to meeting pre-pandemic expectations . For the remaining sectors , office was set to add about 50 million square feet , which would have been the most since the Great
Office ( msf )
Distribution / Warehousing ( msf )
Year-End 2019 Forecast for 2020 310,332 50.8 118.1 6.4 Actual as of 2Q2020 73,899 13.6 61.4 1.4 Source : Moody ’ s Analytics REIS
Retail ( msf )
Recession . Like multifamily , the likelihood of meeting this expectation is minute .
For industrial , with a focus on distribution and warehouse , we had forecasted an additional 118.1 million sf of new space , 25 million more than 2019 — only surpassed in recent history by 2017 and 2018 . Unlike other sectors , 2020 activity has remained high and is on pace to surpass expectations , likely due to the acceleration of e-commerce . Finally , retail was the only sector to have had a forecast below recent averages . The 6.4 million sf of new space expected at the start of 2019 is significantly below the average of nearly 20 million sf over the last 20 years . This sector is also now well behind that modest expectation .
RECENT DATA AND A CHANGE IN FORECAST By the end of the second quarter , we had already cut the forecast for apartment , office , and retail sectors between approximately 10 percent and 20 percent — but that was when epidemiologists were still somewhat bullish that the virus could be mostly contained by mid-summer . Given the continued stubbornness of the virus , we have now further pushed many of these completions to 2021 and beyond .
To get a better sense of how this pandemic and corresponding recession are stretching project end dates and altering our forecast ,
12
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE FALL 2020