New development of commercial real estate and of the ongoing operations of existing commercial real estate buildings in the United States – office, industrial, warehouse and retail – supported 8 million American jobs, contributed $1.01 trillion to the U.S. GDP in 2020, and generated $338.1 billion in personal earnings – according to “Economic Impacts of Commercial Real Estate, 2021 U.S. Edition,” a study released this week by the NAIOP Research Foundation.
The economic impact declined slightly from 2019, when the industry supported 9.2 million American jobs and contributed $1.14 trillion to U.S. GDP.
According to the report, the longest economic expansion in U.S. history — 128 months — unexpectedly ended in February 2020 with the onset of the COVID-19 pandemic. The rapid contraction of the economy beginning in March resulted in second-quarter GDP declining 9.0% from its first-quarter value, a decline of 31.7% on an annualized basis. This decline was accompanied by a sharp decrease in employment — 22.8 million jobs were lost in March and April, and unemployment rose from its lowest level in 50 years in February (3.5%) to 14.7% in April, the highest rate since the Great Depression.
The study broke out several key measures by commercial real estate industry sector:
- Office construction expenditures totaled $38.8 billion in 2020, down 28.5% from 2019 after increasing 12.7% in 2019.
- Retail construction expenditures totaled $11.7 billion in 2020, a decrease of 29.5% from 2019. This decrease marks the fifth straight year of decline; expenditures fell 2.3% in 2019; 9.5% in 2018; 0.8% in 2017; and 7.0% in 2016. The last time retail construction spending increased was in 2015.
- Warehouse construction outlays only decreased marginally in 2020, down 0.3% from 2019. In 2019, construction spending had been up sharply (up 27.4%), continuing a positive trajectory that began in 2011.
- Industrial (manufacturing) construction spending was hard hit by the contraction in 2020, declining 29.5%. During the past five years, industrial construction spending had declined sharply in 2015 and 2016 before increasing in 2017 and 2018 and declined 1.0% in 2019.
The report says that while 2020 was not the year that had been expected, 2021 will be a recovery year:
- Job growth and unemployment rates will continue to improve but are not expected to regain pre-pandemic levels; full employment is not projected to be reached until mid-2022, and unemployment is projected to remain above 4.0% through 2025.
- All GDP growth in 2021 will be make-up or replacement growth that was lost or foregone in 2020. So, while a seemingly robust 4.0% GDP growth is projected for 2021, all of this new GDP value will be needed to bring the value of total GDP near to the pre-pandemic level of February 2020.”
“Many factors point to a commercial real estate rebound in 2021,” said Thomas J. Bisacquino, president and CEO of NAIOP. “Obviously we dealt with several unknowns and an unexpected downturn in 2020; however, we believe that while the pandemic has accelerated trends already progressing in real estate, we have a bright future. Office workers will return to the offices with some regularity in 2021, the industrial and warehouse sectors will continue to expand as e-commerce demand intensifies, and the retail sector will be reshaped as the shopping experience evolves.”
Top 10 States by Development Impacts in 2020
The following are the top 10 states by development impacts (ranked by total output)
(in Billions of Dollars)
(in Billions of Dollars)
The full report includes detailed data on commercial real estate development activity in all 50 states and the District of Columbia, including direct spending; total output; salaries and wages; and jobs supported.
The “Economic Impacts of Commercial Real Estate” report is authored annually by economist Stephen S. Fuller, Ph.D., university professor emeritus, Schar School of Policy and Government at George Mason University, Arlington, Virginia. Data was provided by Dodge Data & Analytics.
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.