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 ?
Object Name: New center overbuilding Geroldswil, construction site east
Keywords: housing, glut, financial crisis, overbuilding, household formations
NIC studies have disclosed a 35% reduction in the number of seniors housing investors overall, and Kramer hypothesized that most of those leaving were relative neophytes who got burned by assisted living overbuilding after the high-flying mid-1990s.
How quickly and vigorously this occurs is uncertain, but without question the boom/bust cycle sparked by the overbuilding of the mid-1990's is nearing its end.
It is too easy to dismiss the current and dramatic downturn in the industry as a combination of overbuilding, flattened growth, license fees, badly managed debt, and inflated valuations.
In that scenario, overbuilding weighed the market down with too much supply according to the conference speakers.
The FDIC warned in its report that Denver, along with 12 other cities, is vulnerable to overbuilding commercial real estate space, in part because of its exposure to high-tech companies.
REAL ESTATE RESEARCH CORPORATION (RERC), Chicago, has launched its Web site, www.rerc.com, with "Metro e-Trends" as its focal point--where users can instantly access in-depth investment criteria (yields, capitalization rates, overbuilding risk, value and rent growth), noteworthy leasing and transaction activities, market statistics, economic and demographic trends, and market updates for 14 of the nation's top metropolitan markets.
The risk of overbuilding, now at 5.8 on a 10-point scale (with 10 equaling high risk), is lower than most other property types.
Despite rumblings about overbuilding in some markets, 1998 was a good year for multifamily builders.
It said, although the near term prospect for the building and construction industry in most of these countries is bleak following the fallout of the region's economies, compounded by overbuilding in the mid-1990s, the longer term outlook is sound.
According to some industry analysts, the plunge in freight car production in the early '80s is attributed to the overbuilding of cars in the late 1970s.