Retail construction sunk to a two-decade low in the first quarter of 2020, with just 400,000 square feet completed in 80 metro areas, according to a report from Moody’s Analytics Real Estate Information Services (REIS).
The retail figures were down 70 percent from the fourth quarter of 2019 and represented the lowest numbers since Moody’s started collecting the data in 1999.
First quarter construction numbers were also grim for office space, which dropped almost 85 percent from the last three months in 2019, the lowest number in seven years. Apartment completions were down 38 percent. The figures for both sectors were based on completions in 82 metro areas.
The first quarter numbers reflect that 30 states had shelter-in-place orders in effect as of March 30. Several states also had bans on construction deemed non-essential, reports GlobeSt.com.
REIS senior economist Hsiao-shan Yang reviewed figures from the Great Recession in an attempt to forecast short-term construction in the three major construction sectors. Using this information, she predicts, “Our experience with the Great Recession in 2008 at least suggests a prolonged construction delay will occur."
During the recession, apartment and retail projects saw an average of six more months of delays, according to Yang’s analysis. Office construction saw delays of an additional three to four months.
First-quarter numbers show that Austin, Denver, Chicago, New York and Atlanta were the top five metro areas in the country for apartment completions, comprising 25.8 percent of construction in the market. Chicago was the sole metro area to remain in the top five list from the fourth quarter of 2019. Only 1,351 apartment units were completed in Chicago between January and March, down from 2,699 in the previous quarter.
The Oakland-East Bay area of California completed the most office space with 350,000 square feet. The region was followed by Salt Lake City, Phoenix, suburban Virginia and Austin.
“Market fundamentals in the office sector have been influenced by telework technology readiness in recent years,” Yang wrote. “The shelter-in-place mandates pushed readiness further, which might reshape work style and office space utilization even after the stay-at-home orders are lifted.”
Houston remained the top metro area for retail construction with 126,000 square feet completed in the first quarter, down from 327,000 square feet for the last three months of 2019. Dallas, Cleveland, San Antonio and Las Vegas rounded out the top five regions for retail.
Yang says the retail downturn “is more reflective of preexisting weakness in the retail sector than the debilitating effects that COVID-19 and the shutdown of the US economy have yet to bring. Developers have hesitated to introduce new retail projects for some time now, as the advent of online shopping has cooled demand in the sector.”