Economy Watch: CRE’s Best of Times

Despite some minor setbacks, there's no doubt that U.S. commercial real estate is having a decent run as of the mid-2010s.

The U.S. economy might be a little uncertain after its first-quarter pause — and certainly the much of the rest of the world’s economy is very much uncertain — but there’s no doubt that U.S. commercial real estate is having a decent run as of the mid-2010s. Most real estate, that is, and in most markets, though there are always lower and higher markets. Detroit, for example, is currently toward to lower part of the market’s bell curve, while Seattle (for another example) is toward the top of the bell curve. The good news for CRE is that the whole bell curve has shifted toward the positive, so that even the lower markets aren’t as low as they were five years ago, and the higher markets are stellar. Even average markets are better than the average of five years ago.

Last week NAIOP Research Foundation reported the Amercian commercial real estate development industry saw its best year in 2014 since 2007. The report, entitled “The Economic Impacts of Commercial Real Estate,” determined that the economic contributions by CRE development increased by 40 percent in ’14 compared with the previous year, the largest gain since the market began to recover in 2011. Direct expenditures on development projects for 2014 totaled about $174.3 billion, up from $124 billion in 2013.

One of the main ways that development affects the economy, naturally, is through construction projects. NAIOP’s 2015 projections show accelerating construction spending, with gains in fixed investment in commercial structures such as office, retail, health care and distribution facilities. Office construction expenditures increased by 29.8 percent in 2014, while industrial — warehouses, in this case — construction registered a fourth strong year of increased expenditures in 2014, up 19.7 percent for the year. The runt of the litter was retail construction, whose expenditures also increased in 2014, but only slightly, increasing 1.1 percent from 2013.

The country’s three most populous states, unsurprisingly, came in at the top of the heap when it came to construction spending, but the No. 1 state — Texas — was far and away the first. Texas construction spending last year, according to NAIOP, totaled nearly $42 billion, which represented more than 776,000 jobs supported. California was next at $13.3 billion in construction expenditures, and New York was third at $10.5 billion. Other top-10 states in ’14 for construction spending were: Louisiana, Nevada, Pennsylvania, Florida, Washington, Illinois, and Ohio.