Commercial real estate development and construction made a financial impact on the economy during the peak of the recession, despite declines in activity, according to a new report issued by the NAIOP Research Foundation, based in Washington, D.C.
According to the report, the compounded economic impact of commercial development and construction spending reached $288 billion in 2009. This sum is divided into $148.6 billion in actual construction costs and $139.4 billion in ‘soft costs’ (i.e., architecture, engineering, marketing, legal, management); site development; and tenant improvements. An additional $2.52 billion were spent on building operations (i.e., maintenance, repair, custodial services, utilities and management).
The report found that spending on development and construction declined in 2009 due to the recession's economic contraction, Direct outlays for construction spending for office, industrial, warehouse and retail totaled $46.6 billion, down 48% from 2007. And although an additional 264.6 million square feet of building space was added to the inventory, it represents a decrease of 68.5% compared to 2007.
Furthermore, the report found that residential construction peaked in 2005, with starts totaling 2.07 million units, and declined to 554,000 housing units in 2009 – a decrease of 73%. During the first three years of this same time period, nonresidential building construction outlays continued to increase, peaking in 2008.
‘This decline in construction spending has resulted in a noticeable effect on the nation's economy, and it has negatively impacted the ability for communities across the county to pull out of the recession,’ says Thomas J. Bisacquino, NAIOP president and CEO. ‘This report reconfirms that a healthy real estate economy is vital to a prosperous U.S. economy, and the industry is depending on lawmakers and the administration to continue to free sources of capital so that development can recommence, and the trickle-down effect will be seen in increased employment numbers and consumer spending.’
Separately, New York-based Integra Realty Resources Inc. released its 2011 IRR-Viewpoint, the industry's annual compendium of real estate valuation, trends and forecasts. This year's report found a mixture of good news and not-so-good news.
‘Certain real estate markets and sectors began to stabilize in the past year,’ says Jeffrey Rogers, president and chief operating officer of Integra. ‘We attribute this stabilization to a number of factors, including the deleveraging of the market, with the notable exception of the multifamily sector, and the bifurcation of real estate markets.’
Among the key findings of this year's IRR-Viewpoint was the impact of continued high unemployment rates in ‘suppressing recovery’ in the office sector and creating setbacks in the rejuvenation of the ailing retail sector. Industrial vacancy rates jumped from 10.17% in 2009 to 10.85% in 2010.
However, the report found that the multifamily apartment sector enjoyed an expansion during 2010, with 81% of markets in the recovery or expansion phase, compared to only 9% in 2010. The report also identified positive activity in the lodging market and the green building sector.
SOURCES: NAIOP Research Foundation, Integra Realty Resource
