The 2Q24 construction numbers show a continuation of the decline in new projects. The chart below shows the square footage of projects starting and completing construction on an annual basis. 12.2 million square feet have started construction in the past year, and 20.3 million have been completed. Beginning last quarter, the level of completions outpaced the level of starts. The gap between these two measures has more than doubled in size and it is likely that a large gap will be maintained in the near future. As a result of the spike of new projects in 2022, the construction pipeline is still inflated, with 63.5 million square feet in progress. As long as projects continue to move forward, the completion numbers will remain high. SF Started will likely remain low for two reasons. Firstly, interest rates and construction costs are still high, which makes it tough to finance developments. Second, even if we get rate cuts in September, the interest in developing new space will be suppressed until a lot of the new space is absorbed. Recently, the level of absorption has not been able to match all the new supply coming onto the market. Until this relationship reverses, there won’t be strong incentives to start building more space.
