NAOIP: Commercial Real Estate Vital to the Overall Economy; Industrial Sector Leads and Retail Stages a Comeback
The impact of new commercial real estate development in the U.S. continues to grow, according to the annual Economic Impacts of Commercial Real Estate research study conducted by the NAIOP Research Foundation.
The combined economic contributions of new commercial building development and the operations of existing commercial buildings in 2022 resulted in direct expenditures of $826.9 billion and the following impacts on the U.S. economy:
- Contributed $2.3 trillion to U.S. gross domestic product (GDP).
- Generated $831.8 billion in personal earnings.
- Supported 15.1 million jobs.
Among other highlights:
- Significant (143.4%) increase in non-warehouse (manufacturing) industrial building construction in 2022, making it the largest segment of new CRE construction in 2022.
- The four property types covered in the report saw increased construction spending (hard costs) last year (see table).
| BUILDING TYPE | 20211 | 20222 | CHANGE (2021-2022) |
|---|---|---|---|
| Office | $40.1 | $44.7 | 11.5% |
| Industrial | 30.2 | 73.5 | 143.4% |
| Warehouse | 48.2 | 52.5 | 8.9% |
| Retail/Entertainment | 14.8 | 17.9 | 21.3% |
| Total | $133.2 | $188.8 | 41.6% |
| Source: Dodge Construction Network | |||
| 1 Revised. 2 Trailing 12 months ending September 2022. |
- With continued remote work, some firms are defensively putting space onto the sublease market, a trend exacerbated by true downsizing and layoffs, which has been especially concentrated in the tech sector.
- Notwithstanding the challenges of office-linked retail in urban-core markets, demand for traditional retail space has rebounded, and overall occupancy rates have recovered to pre-pandemic levels.
“The construction sector ended 2022 with positive momentum that we hope will continue into the new year,” said Richard Branch, chief economist, Dodge Construction Network, provider of the commercial construction data cited in the report. “As we look ahead, growth in sectors such as life sciences, data centers and manufacturing will be important for seeing the potential amid the economic slowdown in 2023.”
Altogether, commercial, residential, institutional and infrastructure development and operations of existing commercial buildings contributed $6.5 trillion to the U.S. economy and supported 37.7 million jobs in 2022.
“The data in the report are strong economic indicators of commercial real estate development investment, job growth, and subsequential contributions to the U.S. economy,” said Marc Selvitelli, CAE, president and CEO of NAIOP. “Our success could be met with headwinds as inflation, workforce constraints and higher interest rates create uncertainty. Our Research Foundation, legislative team and education will keep our members and industry professionals informed on these issues and offer resources as the industry navigates potentially choppy waters.”
The report notes that “slow growth in real (inflation-adjusted) GDP (0.2%) is expected, as well as in nonresidential fixed business investment (0.6%) – both evidence of potential declines in demand for construction and real estate. While expected slowdowns in economic growth in 2023 could dampen demand, the total value of construction is anticipated to increase modestly.”
The full report is online: www.naiop.org/contributions23
The “Economic Impacts of Commercial Real Estate” report is authored by Brian Lewandowski, Adam Illig, Michael P. Kercheval, Ph.D., and Richard Wobbekind, Ph.D., at the University of Colorado Boulder Leeds School of Business.
Since 2008, NAIOP has conducted this study for purposes of estimating the annual economic contribution of commercial real estate development to the U.S. economy. This study is used by real estate professionals and municipal, state, and federal officials and employees, to understand and quantify the key economic benefits of commercial real estate development.
