As recently discussed on the ALN blog, the new construction pipeline has continued to deliver units at a pace similar to that of recent years in 2021 despite supply chain and labor issues. In fact, around 250,000 new units were delivered through August of this year – comfortably above the 200,000 units and 215,000 units from the same portion of 2020 and 2019 respectively. Even as deliveries have ramped up, construction times have maintained their upward trajectory.
At the national level, the average time from a construction start to a lease start for properties brought to market so far in 2021 has been 15.7 months. The 15.7-month average represents a 7% increase from 2020, and 2020 saw an 11% increase compared to 2019 due to myriad COVID-19 complications. Though there is a sample size difference between properties that began leasing during the first eight months of 2021 and properties that began leasing during the 12 months of recent completed years, the increase in deliveries so far in 2021 has mitigated that somewhat.
The upward trajectory in construction time has been a trend that was in place prior to the pandemic, but the pandemic certainly exacerbated the issue. As recently as 2016, the average time from construction start to lease start was 11.7 months. By 2019, the average was already up to 13.3 months. So, from 2016 to 2019, the average construction time rose by about six weeks. Since the end of 2019, the average has climbed by about 10 weeks.
Market Tier View
Some differences emerge when evaluating markets of different sizes. ALN assigns each market to one of four tiers based on its unit count, with Tier One markets being the 33 largest in the country. Here again, sample size is a bit of an issue – especially when talking about development in tertiary markets. Even so, some general observations can be made.
Despite having the highest average construction duration, the increase in the average from 2019 to 2021 has been smallest in the largest markets. The average duration for properties that have begun leasing in 2021 across Tier One markets currently stands at 16.3 months. That represents a 14% increase from the average derived from properties that started leasing in 2019.
The same inverse relationship exists for the remaining three market tiers. The average duration decreases moving down through the tiers, but the increase in that average compared to 2019 increases. For Tier Two markets, the average for properties to begin leasing this year is 15.2 months – a 22% increase from 2019. The Tier Three markets average so far this year has been 14 months after a 24% increase since 2019. For Tier Four markets, the smallest in the country, the average construction duration for properties to lease this year has been 12.9 months after a 26% gain compared to 2019.
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Among the largest markets, there were some standouts on both ends of the spectrum. The three areas with the highest average so far in 2021 are all on the West Coast. San Francisco – Oakland and Seattle have the highest average construction times at 19.8 and 19.6 months respectively. The third highest market-level average is in San Diego, where the average project to begin leasing this year took 18.8 months from the construction start to lease start.
On the other end of the spectrum are three markets in the Mid-West. The lowest average is the 12.8-month value in Cleveland – Akron. Second is Indianapolis at 13.3 months and the third lowest value is the 14.4-month average in Minneapolis – St. Paul.
11 of the 33 Tier One markets have managed to reduce the average construction time for properties to begin leasing so far this year compared to those that entered lease-up last year. Los Angeles – Orange County, San Bernardino – Riverside, and Washington DC have led the way so far this year in that regard. Each has shaved at least 10 weeks off the average construction time. On the other side of the coin, Charlotte, Seattle, and Orlando have seen the largest gains in the average duration so far this year. Charlotte really has been in a class of its own, with an almost five months increase in the average construction time compared to 2020.
Even as construction deliveries have ramped up this year, the average time between a construction start and a lease start has only continued to increase. As with population migration, the COVID-19 pandemic accentuated a trend already in place, and we’ve seen construction time increases elevate at a faster rate since the onset of the pandemic.
At the same time bringing new properties is becoming a more arduous and expensive proposition, lease-up times are continuing to plummet. Be sure to check back here next week for a closer look.
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