New data on the pace of commercial real estate development in the United States shows that 904 million square feet of non-residential space was in the works last year, representing nearly USD $207 billion in hard construction costs for labour, materials and project management. Adding in costs for soft construction services, site development and tenant improvements takes the tally up to USD $409.5 billion in direct expenditures, which flows through to an estimated USD $1.158 trillion contribution to the country’s gross domestic product (GDP).

The NAIOP Foundation’s newly released economic impact analysis pegs CRE’s total GDP impact at USD $2.5 trillion last year, when also factoring in operation of existing buildings. The latter includes USD $503.6 billion in direct spending for the oversight of 56.2 billion square feet of inventory. This supports more than 8.8 million direct and indirect jobs, resulting in nearly USD $465 million in personal earnings.

“Overall, commercial real estate continues to be a vibrant and important contributor to the nation’s economy,” says Marc Selvitelli, president and chief executive officer of NAIOP.

Although 2023 construction expenditures fell by USD $28.3 billion from 2022, representing a 12 per cent year-over-year decrease, spending surpassed the five-year average for the period since 2019. (Meanwhile, the five-year average of USD $164.4 billion for 2019-23 is more than 56 per cent higher than a five-year average of USD $105 billion for the preceding period from 2014 to 2018.)

For 2023, office construction expenditures were up by 5.4 per cent from the previous year, to hit USD $56.3 billion. That was also the highest level in 11 years; the next most, active year for office construction occurred in 2019, with USD $54.5 billion in expenditures. (The NAIOP report includes the qualification that data centres are categorized as office.)

Retail construction spending in 2023 nudged down by 0.7 per cent from 2022 to USD $19.3 billion. Last year was the fifth most active since 2013, as 2022 expenditures also fell short of 2015, 2016 and 2017.

The steepest drop from 2022 occurred in the industrial/warehouse sector, which nevertheless posted the widest margin over the five-year average. Last year saw USD $131.3 billion in construction of manufacturing and warehouse facilities versus USD $162.3 billion in 2022. However, 2023 activity represents a nearly 34 per cent jump from the five-year average of USD $98.2 billion.

“We are seeing some adjustment in construction activity in the industrial sector, where growth had been on a record-setting trend following changes to the retailing paradigm driven by the pandemic and other economic forces,” Selvitelli observes. “We are bullish that as those forces settle out, commercial real estate will expand in 2024.”