WASHINGTON, DC—Commercial real estate development, as measured by the pace of construction, posted its biggest gain in economic impact in 2013 since the recovery began. That’s among the findings of an annual report on the state of the industry by the NAIOP Research Foundation, which nonetheless concludes that the sector’s peak strength—and therefore the full strength of the economic recovery—is still a few years away.
“Commercial development’s economic impact is tremendous; simply put, a healthy development industry is critical to a prosperous US economy,” says Thomas J. Bisacquino, NAIOP‘s 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.”
The report’s author, Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, notes that the economic impact of commercial construction grew by 24.06% in ’13, after first showing signs of a rebound in 2011. “The 2013 gains spanned most commercial building types and generated increased construction employment,” Fuller writes.
Forecasts for this year continue the acceleration, with high single-digit gains in fixed investment in commercial structures such as office, retail, commercial, healthcare and manufacturing facilities, writes Fuller. “These positive trends in construction spending, especially in commercial and healthcare buildings, are projected to gain further strength in 2015 and 2016.”
Fuller makes the linkage between the strength of the US economy’s recovery and the pace of recovery experienced by the construction sector, both residential and nonresidential. “As construction expenditures move toward normal levels between 2014 and 2017, the U.S. economy’s growth rate is projected to increase to 3.5% in 2016, its highest level of the current decade,” according to the NAIOP report.
“Both GDP and employment growth rates are projected to attain their highest levels of the current business cycle between 2015 and 2017, as increases in residential and nonresidential construction expenditures combine to generate significant new capital spending and job growth,” writes Fuller. “Going forward, the US economy cannot achieve a sustained expansion in the absence of the construction industry’s full recovery, which currently is projected to be achieved in 2017.”
Even in its growth stage, though, the numbers generated by construction last year were impressive. Total contribution to US GDP reached $376.35 billion, up from $303.36 billion in 2012; while personal earnings totaled $120.02 billion, up from $96.75 billion in 2012; and jobs supported—including both new and existing jobs—reached 2.81 million in ‘13, up from 2.27 million the year before.
Avid readers of GlobeSt.com will find it unsurprising that Texas topped the list of states by construction value, and that industrial development (not including warehouses) saw the biggest year-over-year increase at 48.05%, due largely to groundbreaking for energy-processing facilities. Warehouses themselves posted an imposing 38.1% Y-O-Y increase in construction expenditures. Office, too, saw a double-digit increase of 23.3% from the year prior, while retail’s increase was more modest at 4.8%.