Commercial real estate development and construction is a perpetual and valuable economic engine, with spending and directly related outlays generating a significant financial impact despite slowed growth and the nation’s economic strain, says a new report issued by the NAIOP Research Foundation.
The compounded economic impact of commercial development and construction spending reached $231.7 billion in 2010:
* $120.2 billion in hard costs (actual construction costs)
* $111.5 billion in soft costs (architecture, engineering, marketing, legal, management), site development and tenant improvements
* $1.86 billion in building operations (maintenance, repair, custodial services, utilities and management)
Total construction spending fell in 2010 for a fourth consecutive year, reflecting both the length and depth of the economic contraction of the national economy. Construction hard costs took the biggest hit, with spending for office, industrial, warehouse and retail totaling $41.7 billion – down 53.2 percent from 2007. A total of 228.4 million square feet of building space was added to the inventory – a decrease of 72.8 percent compared to 2007.
Report data shows that building (both commercial and residential) and non-building (roads, bridges, etc.) construction spending in 2010 totaled $803.6 billion and accounted for 5.5 percent of the Gross Domestic Product (GDP), well off its high in 2007 when spending totaled $1.16 trillion and accounted directly for 8.5 percent of the GDP.
“This decline in construction spending has resulted in a noticeable effect on the nation’s economy, and it has negatively impacted the ability for some communities to emerge from the recession,” said Thomas J. Bisacquino, NAIOP president and CEO. “A healthy real estate economy is vital to a prosperous U.S. economy, and the report shows that the national economy will remain muted until commercial and residential construction and development return to normal levels. It’s critical that lawmakers develop economic policies that will strengthen the economy and create jobs.”
The data and analysis are detailed in “The Contribution of Office, Industrial and Retail Development and Construction to the U.S. Economy” a report authored by Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, and funded by the NAIOP Research Foundation.
Industry Prepared for Employment Growth
Commercial development is on the leading edge of the eventual economic upturn and will be prepared to meet companies’ expansion needs as employment grows. Using standard jobs-per-square foot estimates, the new space developed in 2010 has the capacity to house 559,200 jobs with an annual payroll of $23.5 billion.
The potential productive value of this new building space represents a significant annual contribution to the local, state and national economies. In addition to the significant contribution to GDP and job and income growth nationwide that constructing 228.4 million square feet of new building space represents, these buildings continue to provide economic benefits to their economies after construction is completed. These economic impacts include outlays required to maintain and operate these buildings and the value of the work done in them.
The operating outlays associated with the office, warehouse and retail space built in 2010 are estimated to total $731.8 million annually.
This direct spending for building operations adds 1.86 billion to GDP, supports 13,114 new jobs and generates $543.8 million in new personal earnings.
These operating outlays are annual and recur yearly over the life span of the building.
Source: NAIOP Research Foundation
