by Brianna Crandall — August 8, 2014—The commercial real estate development industry grew at the strongest pace in the last year since the economic recovery began in 2011, according to an annual report on the state of the industry released last week by the NAIOP Research Foundation.
The report, entitled The Economic Impacts of Commercial Real Estate, determined that the economic impact realized by the development process rose a significant 24.06% over the previous year, the largest gain since the market began to recover in 2011. Direct expenditures for 2013 totaled $124 billion, up from $100 billion the year before, and resulted in the following economic contributions to the U.S. economy:
- Total contribution to U.S. gross domestic product (GDP) reached $376.35 billion, up from $303.36 billion in 2012;
- Personal earnings (or wages and salaries paid) totaled $120.02 billion, up from $96.75 billion in 2012; and
- Jobs supported (a measure of both new and existing jobs) reached 2.81 million in 2013, up from 2.27 million the year before.
The report says that the outlook for the remainder of 2014 and into 2015 is that the figures will continue to rise, with year-over-year growth expected in the range of 8%-15%.
NAIOP notes that commercial real estate development has an immense ripple effect in the economy, providing wages and jobs that quickly roll over into increased consumer spending.
Commercial development’s economic impact is tremendous; simply put, a healthy development industry is critical to a prosperous U.S. economy,” said Thomas J. Bisacquino, NAIOP president and CEO. “As the uneven pace of the nation’s economic recovery continues, the industry seeks public policy certainty that bolsters investors’ and developers’ confidence. Despite this lack of assurance, we see positive indicators of a rebounding industry, but believe the industry could be more robust.”
According to the report, the industrial, warehousing, office and retail sectors showed strong gains:
- Industrial development posted a year-over-year gain of 48.5%, due mainly to groundbreaking of energy-processing facilities.
- Warehouse construction registered a third strong year of increased expenditures in 2013, gaining 38.1% in 2013. This is on top of 2012 growth of 28.4% and 2011 growth of 17.8%, showing a sustained increase in demand for warehousing space.
- Office construction expenditures rose for a second year in 2013, up 23.3% from 2012.
- Retail construction expenditures rose modestly for a third year in 2013, up 4.8% from 2012.
Through increased energy efficiency and advanced technology, building owners cut the average per-square-foot cost of operating building space in the U.S. by 14 cents, from $3.20/square foot to $3.06/square foot. Still, maintaining and operating the existing 43.9 billion square feet of commercial real estate space resulted in $134.3 billion of direct expenditures, and resulted in the following economic contributions to the U.S economy:
- Total contribution to GDP in 2013 was $370.9 billion;
- Personal earnings (wages and salaries) totaled $116.8 billion; and
- Jobs supported reached 2.9 million.
The top 10 states by construction value for office, industrial, warehouse and retail were:
- Texas
- Louisiana
- New York
- California
- Iowa
- Florida
- Maryland
- Georgia
- West Virginia
- Oregon
Four new states joined the list: Louisiana at No. 2, Maryland at No. 7; West Virginia at No. 9, and Georgia at No. 10. These states made the top 10 list due predominantly to development of highly specialized and expensive energy-related processing facilities. Illinois, Ohio, Massachusetts and North Carolina dropped off the top 10 list, slipping to Nos. 11, 14, 15 and 18 respectively.
The report includes detailed data on commercial real estate development activity in all 50 states, and also ranks the top 10 states specifically according to office, industrial, warehouse and retail categories. The report is authored by Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, and funded by the NAIOP Research Foundation.
An executive summary of the Economic Impacts of Commercial Real Estate, 2014 Edition as well as the full report, are available from the NAIOP Web site.
NAIOP, the Commercial Real Estate Development Association, is the organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate. Comprising 15,000 members in North America, NAIOP advances responsible commercial real estate development and advocates for effective public policy.
