As new apartment supply has increased, the industry has focused on these elevated levels, especially in light of slowing job growth for many metros. But the supply being delivered today is not an overnight phenomenon, as it takes many months of planning and construction for these large institutional-grade properties to deliver to market.
Identifying planned properties is important for industry professionals, as doing so helps indicate future supply levels. After all, planned properties of today are the existing properties of tomorrow. But how much do planned properties really tell us about future supply levels?
To help answer this question, we will analyze planned properties identified in 2014, and then reexamine their 2017 status to determine not only the amount of product delivered, but also the timing of delivery.
Of course, not all markets behave equally. Market-level nuances influence how much planned product is built and how long that process takes. For example, a property that took two years to deliver in a Southeast market might take twice as long in a high-barrier to entry California market. To help control for this issue, we have selected a set of markets in California. Although market-level nuances still exist, analyzing a smaller geographic region helps control some of the drastic market-level differences.
The Status of Planned Properties
The following graphs show the status of planned properties in each individual year since 2014. In 2014, these California markets combined for approximately 70,000 planned units, with Los Angeles’ 19,700 units leading the pack.
In 2015, the majority of 2014’s planned projects were still in the planning phase, with almost three-quarters of the 70,100 projects still classified as such. However, some markets saw significant movement from the planned to under-construction phase – most notably Riverside/San Bernardino, with 71% of the market’s 2014 planned units moving into the construction phase.
Seeing a negligible amount of stabilized units is not surprising, and the only property to advance from planning in 2014 to stabilized in 2015 was a San Jose property with 50 units.
By 2016, about 40% of the 2014 planned properties were under construction – that’s up from 26% in 2015. The relative lack of lease-up properties (excluding the Riverside/San Bernardino market, which had almost half of its 2,000 planned units in the lease-up phase) shows how long it can take a planned property to move forward in the construction process.
By 2017, even more movement beyond the planning stage becomes evident, although the number may not be as high as one would anticipate. Almost 40% (roughly 28,000 units) of the 70,100 units identified as planned in 2014 were still in the planning stage. Although it is possible that some of these units will eventually be built, the increasing share in the “Other” column indicates that, for one reason or another, there is a measurable amount of planned units that never deliver.
The differences in how long it takes a property to deliver on a market-by-market basis was discussed earlier, but the preceding charts further underscore the notion. Whereas almost half of Riverside/San Bernardino’s 2,000 planned units reached stabilization by 2017, only 1% of Oakland’s 10,700 had reached this stage. Stabilization rates in San Francisco and San Jose – 6% and 9%, respectively – indicate that development in the Bay Area occurs on a much longer timeline than development in areas such as Riverside/San Bernardino.
What do the Numbers Mean for 2017?
The first part of the answer is simple: there are many, many more planned properties in 2017 than there were 2014. In 2014, approximately 70,100 planned units were identified. More than 158,700 were identified in 2017.
The second part of the answer is a little less clear. In the 2014 to 2017 timeframe, 52% of planned units in the California markets examined progressed to construction, lease-up or stabilized status. But current market conditions suggest that many of the 2017 planned properties will have a longer delivery schedule or not deliver at all. Pinpointing the exact number of planned properties delivering three years later would likely prove to be a near impossible task.
The following table takes the percentages from the 2017 status table and applies them to current planned numbers.
Glancing at these numbers, it is easy to see why those in the industry might be concerned with the number of units still in the planning phase. However, these numbers should be viewed with caution: not every planned unit makes it to market, and developers will continue to reassess their development strategies in light of deteriorating or improving market conditions.