Projected pipeline (at a defined future point in time) is the total rentable area (RA) of real estate development projects that are currently in the pipeline (and in the future pipeline) that are predicted to reach effective completion by a defined point in time (PIT). The future pipeline is those projects which currently conceptual that are estimated to reach effective completion by the defined PIT. When projects exit the pipeline, they can be referred to collectively as “new construction” in a market.
New construction is the most critical and important supply concept driving real estate markets.
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.
