Future pipeline includes all real estate development projects that will enter the pipeline at some point, but have not done so yet (are still conceptual or even conceptually non-existent). To be specific, this is usually within a defined geographic area, for a specific real estate asset class.
Future pipeline is different to total pipeline!
When projects do eventually exit the pipeline (by reaching completion), they can be referred to collectively as “new construction” in a market.
What is new construction?
The term new construction refers to completions. The new supply of real estate has three stages, commonly referred to as the “pipeline.” These are marked by three project milestones:
1. Permit (or pipeline entry): the development receives the permit or permission of the authorities based on approved plans.
2. Start or startup of construction, which usually means that “shovels are in the ground” but can be more complicated.
3. Completion: the property is given occupancy certification.
In reality, not all projects that enter the pipeline reach completion. There are “leakages” at every stage, where projects get put on hold, become stalled and are abandoned. The percentage of permits that become starts and the percentage of starts that become completions varies under different market or cyclical conditions.
This is why the projected pipeline is perhaps a more useful metric than the total pipeline because it takes into account only those projects that are truly predicted to be completed by a defined point in time in the future (although one cannot be absolutely sure about the probability of completion for all projects in a market).
Given the considerable time that intervenes between project start and project completion, new construction is reasonably forecastable in the short-run (and not necessarily in the long run) by counting projects and estimating delivery times.
Terms related to future pipeline
There are other useful terms to consider when exploring the dynamics of a real estate market. Vacant space, nominal vacancy rate, structural vacancy rate, shadow space, expanded vacant space, delivery, on hold, stalled development, abandoned development and pipeline entries. These are all important concepts that form the makeup of real estate supply and demand.
