2021: One for the Record Books or a Return to Consumerism? Part 2
In July, we published a note suggesting the possibility that the record number of new development contracts signed in Manhattan during H1 2021 was not indicative of a sustainable new level of demand but, instead, a pocket of pent-up demand created by the COVID shutdown.
In order to explore that possibility, we wanted to compare atypical 2020–21 to what we consider a “typical” historical period. We assigned the 5 years directly preceding COVID (2015–2019) as that baseline and plotted the average number of contracts signed during H1. We then determined the H1 average for 2020–21 and compared that data point to the historical average. What we found is that, although H1 2020 produced a record low number of new dev contracts and H1 2021 yielded record high contract volume, the average of the Jan — Jun period during those two years coincides closely with the historical average for the same 6-month period (DATA COURTESY OF MARKETPROOF):
Given that Q3 2021 is now in the books, we wanted to replicate our previous study with the additional data points available. The following chart describes the 9-month period Jan — Sep and average contract volume for 2020–21 is still on par with the historical average (DATA COURTESY OF MARKETPROOF):
This bolsters our previous suggestion that the record number of new development contracts signed during 2021 is the aggregate of the typical number of contracts signed during any given year plus those contracts that would have been executed in 2020, but were temporarily shelved as purchasers chose to remain on the sidelines during the worst of the COVID pandemic. Also active in 2021, we suggest, are both speculative investors and savvy end-users who perceived the COVID shutdown as a RE market bottom and buying opportunity.
Another, and perhaps the prevailing theory, is one that suggests that the record number of contracts signed during 2021 is in fact a new level of demand, catalyzed by changes in income distribution, including wealth created in the equities and cryptocurrency markets during the pandemic.
The new development market — by virtue of a sustained level of robust contract volume, or, a cooling off to historically normal levels — will soon reveal which theory is correct and we will report back promptly once it does.
KEY TAKEAWAY #1
- In terms of number of new development contracts signed, the average of the Jan — Jun periods for record low 2020 and record high 2021 is on par with the Jan — Jun average for the years 2015–2019 which preceded COVID
KEY TAKEAWAY #2
- Having just closed out Q3–2021, we also see that the average Jan — Sep period for 2020–21 is on par with the same period average for 2015–19
KEY TAKEAWAY #3
- We suggest that the record number of new dev contracts signed in 2021 may not be an indication of a greater level of demand for NYC but; instead, a backfilling of the contract void during the pandemic.