Economy Watch: Office, Hotel Investment Has Recovered; Retail Has Not

In the first quarter of this year, non-residential investment increased at an annualized rate of 9.4 percent, according to Bureau of Economic Analysis data. And while the hotel and office sectors have more-or-less recovered to their pre-recession levels, the retail category is facing challenges.

moneyInvestment in non-residential structures increased at a 9.4 percent annualized rate in the first quarter of 2017, the fastest growth since fourth-quarter 2013, which points to the health of the overall sector, according to an analysis of Bureau of Economic Analysis data from Associated Builders and Contractors. The BEA report details commercial real estate spending as a percentage of GDP, following its release of overall GDP numbers late last week.

Breaking investment down by property type reveals that some kinds of real estate are doing better than others, however. Office space investment, for instance, is now about 0.4 percent of U.S. GDP, or nearly as high as before the Panic of 2008. Investment in that sector has seen a steady recovery, though it’s unlikely it will reach the levels of the go-go ’80s again, when it touched 0.8 percent to 0.9 percent of GDP.

Investment in lodging has likewise more-or-less recovered to its pre-2008 status. It’s nearly back to 0.2 percent of GDP, after dropping below 0.1 percent after the recession. With the exception of a spike in the late 1990s, that’s roughly where lodging investment has been for over 50 years.

The same cannot be said for investment in multi-tenant retail properties, which has recovered a bit since the recession, but not much. Now it’s just over 0.1 percent of GDP. Historically, multi-tenant retail has been closer to 0.2 percent, and sometimes over, especially in the 1980s and pre-recession 2000s.