An Analysis by Thomas P LaSalvia, PhD
The COVID-19 pandemic and subsequent economic shutdown has led to a severe reduction in completions for all major CRE sectors. Delay in construction activity is a common recessionary phenomenon. Time to completion was delayed by approximately 6 months during the Great Recession. Second quarter data is showing this pattern to hold, but there is also reason to believe activity may be slower and deeper than “normal”. Typically, concerns over funding, cost saving reductions to labor, and general economic malaise are to blame for the delays. The current period is experiencing all three, but, the effect is compounded by mandated ceasation of construction for some states, as well as labor physically unable to work due to COVID symptoms. Further adding the potential structural changes to come regarding where and how we work, live, and play; and many developers, especially in early stages, will have to rethink the worthiness of that specific project.
Prior to the pandemic REIS was projecting record activity, especially for the apartment sector. Some of this will stall, some may be canceled, but much had been started and will continue. When and where will be incredibly important to market outcomes over the next few years. Our survey teams are closely monitoring this situation.
Thomas P LaSalvia, PhD is a Senior Economist in the research and economics department at Moody’s Analytics REIS.