overbuilding


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overbuilding

A situation that occurs when the rate of construction is faster than the market can absorb new construction.Developers often cannot anticipate the amount of competition until it is too late.The lead time between placing land under contract with a lengthy due diligence period to the first signs of excavation or construction that would alert people of new development can be as long as a year on small projects. The typical market cycle is a period of perceived need for “product”—offices,houses,malls,whatever—and then a seeming explosion of new projects “coming out of the ground”almost simultaneously.By the time developers see the signs of large numbers of competing projects,it is too late to back out of their own plans.As a result,all projects go full steam ahead and hope that something other than price will differentiate them from competitors, allowing the current project to fill up quickly while competitors go begging.This hope is usually misguided,and a price war results.

References in periodicals archive ?
Before, the danger of overbuilding was very limited,'' said Roger Rasmussen, LAUSD deputy budget director.
But at the same time, Dunleavy agreed that conservative lending behavior has also protected the commercial real estate industry from overbuilding.
A key credit concern is that the current environment of high power prices and easy access to funding could lead to overbuilding with more substantial declines in power prices for generators,' said Denise Furey, Senior Director, Fitch Global Power team.
This means we will continue to see an increase in the number of real estate workouts in 2004, particularly in certain regions, that have experienced overbuilding during the last real estate cycle.
Long criticized for overbuilding power plants and locking in fuel supplies at high prices in the 1970s oil crisis, the DWP now is virtually alone in its energy prosperity in a region facing doubling of electricity rates and threats of rolling blackouts due to a heat wave that has sent demand soaring throughout the West.
Although according to Bach, 'rising interest rates, higher energy costs, a slowing housing market, and the beginnings of overbuilding in select markets will put downward pressure on retail performance in the year ahead.
She" pointed out also that while the tremendous overbuilding of the 70s and 80s precipitated the real estate recession of the early 90's, today's low yacancy rates augur well for the present market.
com, a real estate investment advisory firm specializing in distressed property and nationwide foreclosure property listings, reported that a combination of overbuilding and rampant speculation in the South Florida condo market could lead to a severe price correction.
One main reason for this optimism is that developers in New York City did not start an overbuilding craze during the economic expansion of the 1990's as they had in the late 1980's and which contributed to the severity of the recession of the early 1990's.
Retailers and wholesalers, however, plan a cutback in spending of 4 percent, in what economists said was a sign of weak consumer spending and overbuilding of stores.
The industry has expressed concern that companies active in the market are running the risk of overbuilding import terminal capacity - creating a potential oversupply in the market that will depress gas prices and impede operating profitability.
4 million SF of space came on-stream in the past three years, so we were not affected with the overbuilding that is now impacting other markets.