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 ?
But at the same time, Dunleavy agreed that conservative lending behavior has also protected the commercial real estate industry from overbuilding.
com/comcast-planning-drop-bid-time-warner-cable-ending-yearlong-merger-effort-report-1894618) eventually blocked by the FCC -the two companies would have no intention of overbuilding in one another's regions.
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.
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.
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.