Commercial Development A Boon To The Economy

The link between a thriving development market and the broader economy may seem obvious, but the 78-page report claims to have quantified the benefits for the first time.

According to the study, sponsored by the National Association of Industrial and Office Properties (NAIOP), commercial real estate development contributed $498 billion to gross domestic product (GDP) in 2005. What’s more significant is that ripple effects from this new construction spurred additional economic benefits. The full analysis was prepared by Dr. Stephen Fuller, director of the regional analysis center at George Mason University.

“By 2005, all sub sectors of nonresidential construction were accelerating, helping to offset slowing residential building construction outlays in 2006 and 2007,” says Fuller. “This counterbalance kept the national economy from experiencing a sharper slowdown in the face of rising energy costs and lost output due to Hurricane Katrina and Rita.”

The commercial real estate development industry supported 4.2 million full time jobs in 2005, making it one of the largest U.S. employers that year. Each $1 million spent in new construction supported roughly 28.5 full time jobs, according to the survey.

"Commercial development remains an engine of economic growth in America," Fuller says. "These buildings house economic growth."

New buildings also spur future economic benefits thanks to soft costs, hard costs and building operations. Soft costs include architects, engineering, marketing, legal, management and site development. Hard costs are the actual construction costs, and building operations include maintenance, repair, utilities and custodial services.

The survey also identified the top 10 states by construction value among four categories: Office, industrial, warehouse and retail. In 2005, for example, Texas led the nation in industrial development. California led the ranks in all three remaining categories and also ranked first for total commercial construction, followed by Texas and Florida.

NAIOP President Thomas Bisacquino believes this data makes state and local governments aware of how commercial development has helped their communities.

“The latest U.S. Census Bureau data shows that spending for just the ‘hard costs’ of commercial development to create office, industrial [buildings] and stores rose a respectable 2.4% in March 2007, more than making up for the 1% drop in residential construction,” he says. “Commercial real estate development has an immense ripple effect in the economy, providing wages and jobs that quickly roll over into consumer spending.” For more on the survey, visit http://www.naiop.org