by John Salustri — Originally published in the July/August 2016 issue of BOMA Magazine — It has been said that the best place to hide something is in plain sight. There is one U.S. industry that proves the truth of that old maxim: commercial real estate.
And, yet, we are surrounded by major clues to the true economic power generated by the massive inventory of U.S. office buildings. Hundreds of millions of people populate offices virtually every day of the week. Those of us employed therein spend most of our waking hours there.
Despite these clues, the built environment goes mostly unnoticed—until, that is, an elevator breaks down, a cafeteria pipe leaks or the heat needs regulating.
This lack of awareness stems largely from the sheer repetition of the act of going to work. It is a ritual, near to a cliché, so ingrained in the American culture that it far overshadows the fact that the destination—the office—will on this day make a major contribution to the U.S. economy. Given this culture, it’s understandable that many also lose sight of the professionals who make it possible for those hundreds of millions to work—those who service the tenants and keep those elevators and those pipes functioning.
Nevertheless, commercial real estate is a huge industry, an industry no less expansive than airlines, insurance or household products. In fact, there are some 1.75 million operational jobs supported by the commercial and government-owned buildings located in the markets represented by BOMA’s 91 U.S. local associations.
Working mostly behind the scenes, those jobs range along the entire life cycle of the 10.5 billion square feet represented in the BOMA portfolio, from pre-construction and construction activities to daily operations and maintenance once the assets are up and running. In all, last year, this massive engine generated ongoing operating costs of $89.1 billion—more than the 2014 gross domestic product (GDP) of the Hartford, Connecticut, metropolitan area.
STILL WATERS
In turn, there is an accruing nature to that $89.1 billion as it is re-spent and cycles through the local, state and national economies. It is a ripple effect that generates from the office building out—to everything from the local pizza joint and the corner delicatessen to regional, national and even international deliveries of building supplies and equipment.
That ripple effect also supports significant job growth, both directly and indirectly, and generates new personal earnings that provide further stimulus to the economy. Ultimately, building operations and maintenance expenditures last year contributed nearly $235 billion to the national GDP. In short, according to data from the U.S. Bureau of Economic Analysis, for each dollar laid out in building operating expenditures, the U.S. economy gained $2.64, revealing the major force in U.S. commerce that is this otherwise “hidden” industry.
In addition, this $89.1 billion generated a total of $67.4 billion in new personal earnings as a result of both the jobs supported directly by this spending and the jobs supported indirectly—by the re-spending of these dollars for consumer goods and services. At the national level, where these annual office building operating expenditures have their greatest cumulative impact, for each one dollar in direct operating outlays, $0.76 of new personal earnings were generated. These new personal earnings directly contribute to the tax bases in local and state jurisdictions.
GETTING DOWN TO BUSINESS
And that doesn’t begin to scratch the surface. Those expenditures support the lifeblood of America’s stock of office buildings—the tenants, representing every conceivable vertical market, from the two-person tech startup to the national and international corporations with workforces numbering in the thousands. We can’t ignore that critical mission of building operations—to support the productivity of the American office. The 10.5 billion square feet of office space located within BOMA’s U.S. markets provides the “factory floor” for today’s economy; these productive workplaces are where much of the nation’s gross regional product (GRP) is generated each day.
In fact, assuming an occupancy rate of 85 percent and an average of 190 square feet per office worker, buildings in the BOMA portfolio last year provided workspace for an estimated 46.9 million office jobs—meaning roughly one-third of all U.S. workers work in BOMA office space! Additionally, each office worker produces an average of $109,332 in annual GDP value for a total GRP contribution of $5.13 trillion, which, in turn, accounted for 28.9 percent of the U.S. economy last year.
THE ANALYSIS BEHIND THE STORY
The information in this article is based on the data found in BOMA International’s just-released biennial economic impact study. Where America Goes to Work: The Contributions of Office Building Operations to the Economy, 2016, was authored by Stephen S. Fuller, PhD, Dwight Schar faculty chair and university professor and the senior advisor and director of Special Projects for the Center for Regional Analysis at George Mason University. To download the complete report and view additional analyses of the impact of commercial real estate in your state and local market, visit www.BOMA.org/EconomicImpact.
A CROSS-SECTION OF AMERICA
Commercial real estate is a national industry that hides in plain sight. And, yet, a lack of daily awareness cannot hide the role of commercial office buildings as a major source of economic activity, jobs and personal earnings.
The contributions that building operations make to the local, state and national economies not only grow even when the economy is contracting, they accelerate in an expanding economy. And, while the economic benefits from construction end when the building is ready for occupancy, the benefits flowing from the annual building operating expenditures extend over the lifespan of the assets and grow as this inventory expands, supporting local vitality through the creation of new jobs, the generation of personal income and the contribution year after year—in good times and bad—to the local tax base. That contribution is essential also as business and government leaders consider the strategic and competitive positions of their communities in an increasingly competitive global economy.
Finally, then, a clear picture begins to develop of the broad, deep and positive impact this industry has nationwide. In many respects, the commercial real estate business is a “hidden” industry. But it is no less a powerful one, one that represents a major part of the intricate matrix that is the U.S. economy.
Office buildings are, indeed, where America goes to work.
ABOUT THE AUTHOR: John Salustri is editor-in-chief of Salustri Content Solutions, a national editorial advisory firm based in East Northport, New York. He is best known as the founding editor of GlobeSt.com. Prior to launching GlobeSt.com, Salustri was editor of Real Estate Forum.