NAIOP: Gov't Uncertainty Clouds Development

WASHINGTON, DC-US CRE development generated $303.4 billion of economic activity in 2012, up nearly 16% from 2011's tally of $261.6 billion in 2011, while adding 307.5 million square feet to the nationwide total, up 29% from the new space built in the prior year. Yet governmental uncertainty threatens such double-digit gains from being achieved again in the next few years, the NAIOP Research Foundation says in a report to be published Monday. GlobeSt.com exclusively obtained the report prior to its publication.

“The commercial real estate industry is improving, yet is being hindered from reaching its full potential,” says Thomas J. Bisacquino, president and CEO of NAIOP. “Developers and investors have to be able to anticipate levels of demand three to five years ahead, but their vision is clouded because of uncertainty in Washington and in state capitals, which explains the slow pace of recovery. If we don't get clarity on budget policy, tax reform or the renewal of terrorism risk insurance, it will hold us back from our true potential to really drive greater job creation and economic growth in America.”

NAIOP's report makes it clear that the nation can't have the one (construction sector recovery) without the other (economic recovery)—and vice versa. “The strength of the US economy's recovery is directly linked to the pace of recovery experienced by the construction sector, both residential and nonresidential,” writes the report's author, Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. “As construction expenditures move toward normal levels between 2013 and 2015, the US economy's growth rate is projected to increase from 2.2% in 2012 to 3.5% in 2015.”

Last year, Fuller notes, “broad-based gains in residential and nonresidential building construction in '12 contributed to the national economy's stronger performance in 2012 compared to '11.” The report, which also provides state-by-state analysis, cites hard numbers related to the economic benefits of both hard and soft construction costs. Construction in '12 meant $96.7 billion in new personal earnings and supported a total of 2.3 million full-time equivalent, year-round jobs.

“With projections that both residential and nonresidential (commercial, health care, and manufacturing and warehousing) construction expenditures will accelerate in 2013, 2014, and 2015, the US economy will experience stronger growth once it digests this year's increase in federal taxes and decrease in federal spending,” writes Fuller. “Both GDP and employment growth rates are projected to attain their highest levels of the current business cycle between '14 and '15, as increases in residential and nonresidential  construction expenditures combine to generate significant new capital spending and job growth.”

Going forward, “the US economy cannot achieve a sustained expansion in the absence of the construction industry's full recovery,” Fuller writes. The recovery is currently projected to continue to at least 2018.