Abandoned Construction: A Leading Indicator For Economic Change?

4th lock on the canal, abandoned in constructi...

The commercial real estate data ecosystem is an exciting place where study of routine market phenomena promises to expose new knowledge and improve our perception of market trends. When it comes to routine phenomena in the CRE industry, construction permitting and construction abandonment are great examples. Abandoned construction can follow permit issuance, even though issuing a permit reflects a milestone in a commercial property development where forward-looking diligence, commitment and optimism on the part of the underwriters, the developer and local government are all at high enough volume to actually break ground on a project.  What can the data on construction permitting and abandoned construction show us about that area?

Of course, getting past an important milestone does not ensure a completed project. When construction is permitted and begins, but does not complete, it’s a sign that something went wrong in the typical arenas: financial (scheduled funding does not materialize), legal (neighbors, competitors or government catch up to the plans), collaborative (partnerships/joint ventures stress and fracture),  insurance, construction — you name it, it can go south.

Beyond being bad news for individual development and developers, abandoned construction also projects ills onto the surrounding area, effectively serving as a highly visible advertisement for the area’s potential for uncertainty and failure. Is it possible that counting and analyzing an area’s abandoned construction projects can produce a leading economic indicator?

That’s the premise behind the report at BuildFax.com, a real estate data analytics team based who looked at the linkage between construction project abandonment and wider economic change in the related areas. The findings are fascinating and the relationships might surprise you.

You can download a free copy of the BuildFax report “Is Abandoned Construction An Early Signal For Economic Change?” at this link.   The study finds a tight association among its sample between abandoned construction and wider economic bad news for sample areas. The study blends fifteen years of construction data with current data, so the model isn’t fit for prediction today. But without a doubt, the study can make an impact on the thinking around abandoned construction and the full range of what failed projects can add up to for communities, businesses, and all stakeholders.

Photo credit: Wikipedia