Commercial Real Estate Development Boosts the Economy
Commercial real estate development is starting to make a noticeable comeback. While developers sat on the sidelines in 2009 and 2010, many who survived the recession are back in a big way, making a difference brick by brick, block by block.
“2012 was one of the strongest years for development since the downturn, and we expect that once the 2013 statistics are available, it will have been slightly better than 2012,” said Jean Kane, 2014 chairman of the National Association of Industrial and Office Properties (NAIOP).
In 2012, commercial real estate development totaled 3.7 million square feet, a 29 percent increase from 2011, Kane said. However, development is not yet back to pre-recession levels. In 2007, development totaled 8.39 million square feet, she added.
The commercial real estate market has had a great impact on GDP, contributing $303.4 billion to total U.S. production in 2012, Kane said. “Commercial real estate is the backbone of jobs in nearly every community,” she said. “The market supported nearly 2.3 million jobs in 2012.”
The various jobs that fall under the development umbrella, such as architects, engineers, planners, construction workers and project managers, help support job creation and economic growth, Kane said. In fact, in 2012, construction contributed $96.7 billion in new personal earnings to U.S. GDP.
Construction spending in 2012 totaled more than $100 billion, a 10 percent increase over the previous year, Kane said. The top five states for construction spending in 2012 include a few surprises, she added. New York spent $4.8 billion, Texas $4.3 billion, Iowa $2.9 billion, California $2.9 billion and Ohio $2.4 billion.
The big 24-hour cities — New York, Boston, Washington, D.C., Chicago and San Francisco — remain popular because they rebounded from the recession quickly and more steeply, Kelly said. “24-hour cities include a high urban density and a mix of uses within them that enable them to remain active into the midnight hour,” he added.
Miami and Las Vegas are on their way toward becoming 24-hour cities, Kelly said, as is Seattle, with its good mix of office and residential properties downtown.
“Urban apartments are the hottest sector that we see now,” said Conor McNally, senior vice president and chief development officer at Carter. “Millennial's are really driving that market. They want to be in a walkable environment.”
Carter is also heavily focused on off-campus student housing, with development projects underway in San Antonio and Ann Arbor, Mich., McNally said. Under Carter’s program management arm, the company has an additional eight education projects under construction.
Developers are taking notice of the high-growth sectors right now, like energy, technology, education and healthcare. “Practically every university and hospital in the country is expanding and needs space for offices and ancillary activity,” he said.
As for mixed-use projects, developers have learned that there’s a lot of complexity involved and that they have to be careful to construct deals that will be financially successful. “Often you’ll see a development that can be successful for the users that is overly complicated from a design and execution standpoint,” McNally said.
In 2014, core sectors should continue to see development growth. “Multifamily developers have to stick to fundamentals of creating good, well-located projects,” McNally added. “We do see office growing, but it’s not as strong as residential. We’ll also continue to see mixed-use development, but not the very large projects that we’ve seen in the past.”
It’s good to see development pick up steam. The sector supports all professions in the real estate field, as well as the economy overall. For more insights on the subject, the audio podcast is available for download at www.CREshow.com.
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