As 2015 came to an end, construction deliveries for the office, retail and apartment sectors were on the rise, according to Reis. That trend is expected to continue through 2016, the New York-based commercial real estate data firm says.
For the fourth quarter of 2015, the apartment sector recorded its third consecutive quarter above 50,000 units delivered. Deliveries for office properties were above 9 million square feet for the third consecutive quarter. Retail deliveries increased for the second consecutive quarter.
Apartment Sector Ramps Up
“2015 was the highest year for apartment construction since 1999,” says Ryan Severino, senior economist and director of research at Reis. “With the pipeline continuing to swell, completion figures for 2016 are expected to exceed those from 2015.”
Texas markets led deliveries for new apartment units, with Houston posting 4,330 new units and Dallas delivering 3,178 units in the fourth quarter of 2015. Behind the Lone Star State is Seattle, posting 2,806 newly constructed units.
Los Angeles delivered 2,795 units, and Denver added 2,671 units to the multifamily landscape.
Office Sector Stays Steady
Office construction has slowly increased over the last few quarters. The fourth quarter of 2015 ended with just under 11 million square feet of new deliveries.
“Thankfully, net absorption continues to exceed new construction levels, which are still somewhat low by historical standards,” says Severino. “Purely speculative construction remains relatively scarce, but is inching upward over time, with more developers mooting the idea than at any point in time since before the recession.”
The office sector delivered 36.6 million square feet over the course of 2015, the highest year-end total since 2009. Severino expects the pipeline to grow modestly during 2016 but remain below pre-recession levels.
Dallas and Houston stole the spotlight again, delivering 1.2 million square feet and 919,000 square feet, respectively, in the fourth quarter. Only San Jose, Calif., posted more newly constructed office space at 1.5 million square feet.
San Francisco was the forth top metro area, providing 733,000 square feet of office space followed by Phoenix, which completed 668,000 square feet during the forth quarter.
Retail Sector Lags
The retail sector posted 2.1 million square feet of new construction deliveries during the forth quarter of 2015. This was the second consecutive quarter of increasing deliveries — the sector delivered 1.9 million square feet in the third quarter — but far below expectations for the sector.
“Retail remains incredibly low by historical standards and is still a weak result,” says Severino.
Severino notes the stark contrast between last decade, when retail was the only property type to experience any significant growth, and now, where retail has barely grown since the recession.
Speculative construction lags behind, few new centers are being built and expansions are even more rare.
Houston grabs the top spot once more posting 235,000 square feet of new retail deliveries during the last quarter of 2015. Austin follows with 231,000 square feet and Norfolk, Va., delivered 230,000 square feet.
Detroit is the only Midwest metro to make a top slot for completions across any property type, delivering 208,000 square feet of retail space. Dallas trails with 193,000 square feet.
Both retail and office construction will continue their recoveries through 2016, according to Severino.
“The recovery fundamentals for those property types in general have not been very strong in the past, so there has been a strong desire to build,” says Severino.
— Christina Cannon