WASHINGTON, DC—Construction cranes all but disappeared from thelandscape during the depths of the downturn. In the summer of 2014,they're seemingly everywhere to be found, in a positive response toan economic recovery that's gradually gaining strength. Yet is thisramping up a prelude to overbuilding, as it has been in more thanone previous cycle?

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At present, the fundamentals generally support the ongoingconstruction activity, with the possible exception of one sector.That's among the key takeaways of a new CassidyTurley report on the state of commercial real estatedevelopment across the US.

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The report notes that while the current recovery is the sloweston record in the post-World War II era, there's an upside to thisgradual pace. “The fact that there has been no major rebound ingrowth — no snapback, no surge — lowers the probability that the USeconomy faces the imminent threat of overheating, often the causeof the next recession.”

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Further, even with double-digit year-over-year increases inconstruction spending seen for the past two-and-a-half years,employment in the sector has recovered just 25% of the 2.2 millionjobs it lost during the downturn, putting the construction businessin “the early stages of recovery,” according to Cassidy Turley'sreport. “Moreover, with construction payrolls just 25% recovered,even as the rest of US GDP is achieving new highs, it would seemthere is a disconnect between what is currently being demanded bythe economy in terms of space and what is currently beingsupplied.”

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Office-using employment has been among the slowest-paced jobssectors in terms of recovery, and that, coupled with many tenants'shift to smaller and more efficient spaces, has kept absorptiondown. Yet there's an impetus for development here: aging stock,approaching 80% of the inventory in markets such as New York Cityand Chicago.

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“This would not be an issue if tenants desired older space,” thereport states. “But for the most part, they do not. Since 2010,high-quality office space has accounted for 70.8% of all the netabsorption that has occurred during this recovery.”

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In connection with a NAIOP Research Foundation report on thestate of industrial development, NAIOP presidentThomas J. Bisacquino told GlobeSt.com earlier thisweek that the wave of construction in the sector isn't likely toput a dent in absorption. Cassidy Turley's assessment bearshim out.

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Even as industrial vacancy has fallen nationally to 8%, “go onelayer deeper and one can easily observe that certain aspects of theindustrial market are much tighter than that,” says the CassidyTurley report. “Over 60% of the country's industrial markets haveless industrial space than their 10-year average.” Meanwhile,asking rents are rising “as fast today as they did during the lastreal estate boom.”

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For multifamily, the “explosive growth” in construction willexact something of a toll in terms of vacancy increases and rentgrowth. Even so, vacancies will remain “much tighter” than thelong-term average of 5.4%, and while rent growth may moderate, itwill still come in “somewhere between 2% and 3%” annually.

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As with office, there's a similar “flight to new” dynamic atwork in retail, with tenants demanding class A space. That hasboosted new construction from 19.3 million squared feet between2009 and 2012 to 17.1 million square feet in 2013 alone. Incontrast to industrial, there's little speculative retaildevelopment going on, and Cassidy Turley notes that 88% of thespace that has come on line over the past 12 months had tenancy inplace before construction was finished.

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Unlike the other sectors, however, “the retail sector may be ashort-lived chapter in this tale,” according to Cassidy Turley. Itpredicts a slowdown in construction after a wave of new product isdelivered—amid increasing challenges for brick-and-mortarretailers.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.