Why is the concept of “abandoned development” useful?
Before defining what an abandoned development is, it is important to discuss why it is a crucial term in commercial real estate. If a real estate development has not actively been under construction for a period of time, at what point is it acceptable to assume that there is a high chance that construction won’t start again? Of course, a conversation with the developer themselves would often reveal their exact intentions for the site, and whether they will continue with the construction of the current property typology or not.
However, on a more macro level, when real estate markets are being analyzed, these direct conversations cannot always happen. Therefore, a proxy is needed for the sake of knowing the point at which developments can be considered abandoned.
Once a development has been abandoned, it can reasonably be assumed to have exited the real estate pipeline. Knowing what developments are in the pipeline is part of the process of determining what the supply of real estate will be in a specific market, which is therein useful when determining demand-supply gaps.
What is the definition of an abandoned development?
A real estate development is considered to be technically abandoned after it has been stalled for more than 2 years. The reasoning behind this is that it can be assumed that weathering decays the building to a point of no return after a period of approximately 2 years. The development project exits the pipeline at this point. It could in theory re-enter the pipeline at a future point in time.
