How Commercial Real Estate Impacts the Economy

The impact of new commercial real estate development and of the ongoing operations of existing commercial real estate buildings in the United States continues to grow, according to the annual ‘Economic Impacts of Commercial Real Estate, 2022 U.S. Edition,’ 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 2021 resulted in direct expenditures of $434 billion and the following impacts on the U.S. economy:

• Contributed $1.2 trillion to U.S. gross domestic product (GDP)
• Generated $418.7 billion in personal earnings
• Supported a total of 8.5 million jobs.

Based on the existing stock of commercial buildings — totaling 51 billion square feet at the end of the third quarter of 2021 — direct expenditures for building operations totaled an estimated $194.5 billion and contributed $531.5 billion to GDP. These direct expenditures also generated $187.2 billion in personal earnings (wages and salaries) and supported 4.2 million jobs.

According to the report, in March and April 2020, the construction industry lost 1.1 million jobs, or 14.6% of employment; by November 2021, it added back 1 million jobs, leaving a deficit of 115,000 (1.5%) from the pre-recession peak. Aside from the impact on labor, the construction industry at large was spared the impact from the pandemic recession. The continued demand for new construction throughout the pandemic has positively impacted the economy. The demand for construction inputs—from design services to construction goods and labor—meant that the industry was a catalyst for the economic recovery. The construction industry continues to lead the overall U.S. economic recovery from the pandemic recession.

Among other survey highlights:
• Total construction expenditures (hard costs) for new office, industrial, warehouse and retail buildings in 2021 totaled $125.6 billion, up $20 billion, or 18.9%, from the revised annual total for 2020.
• Office construction expenditures averaged $46 billion over the past five years (2016-2020). Office activity totaled $40.9 billion in 2021, down 5.9% from 2020 and down 24.9% from 2019.
• Industrial (manufacturing) construction expenditures averaged $25.6 billion over the past five years (2016-2020). Industrial activity totaled $28.2 billion in 2021, up 81.3% from 2020 ($15.5 billion) but down 16.3% from 2019.
• Warehouse construction outlays averaged $26 billion over the past five years (2016-2020). Warehouse activity surged 25.9% in 2021 to total $43.2 billion. Activity was up 43% from 2019.
• Retail construction expenditures averaged $17 billion over the past five years (2016-2020). After decreasing 26% in 2020, retail posted a rebound in 2021, increasing 8.3% to $13.3 billion. Retail activity remained down 19.5% from 2019.

“We’re obviously going through a paradigm shift in all industries as a result of the pandemic,” said Thomas J. Bisacquino, president and CEO of NAIOP. “The commercial real estate industry has continued to expand because of that change, adding more to GDP, employing more people and generating more in personal earnings. While we’ve seen a shift that includes less office building development and more industrial/warehouse development, we expect a return to more normal patterns of development as we continue to emerge from the immediate impact of the pandemic on the industry.”

California is listed as one of the “Top 10 State by Development Impact in 2021,” ranked third overall by total output and only bested by Texas and Arizona.

NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate. NAIOP comprises 20,000 members in North America. NAIOP advances responsible commercial real estate development and advocates for effective public policy.

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