Spending on commercial property development is expected to increase again next year and continue to accelerate through at least 2018, according to a pair of new reports out this week from NAIOP and the American Institute of Architects.
Analyzing Dodge Reports construction data for a report published by the NAIOP Research Foundation, George Mason University economists Stephen S. Fuller and Dwight Schar totaled 429.4 million square feet of new CRE space that started construction in 2015, contributing an estimated $450 billion to the U.S. GDP. NAIOP study forecasts continued expansion of construction spending through 2018.
In a separate report released Wednesday, the American Institute of Architects reported that architecture billings, considered a leading indicator of hard construction spending, increased again in June for the fifth consecutive month. The Architecture Billings Index (ABI) reflects a surge in expected construction, driven by the strongest demand for residential projects in two years, according to AIA Chief Economist Kermit Baker.
Meanwhile, the GMU economists who authored the NAIOP report said the slow ramp-up in construction levels has had a huge benefit.
“Some of the projects that would have been started this year will get pushed into 2016 because of some soft spots in the economy earlier in the year, and that will result in a race to the top next year,” Fuller told CoStar. “Construction probably won’t peak until close to the end of the decade, because it’s been such a long and tortuous process of acceleration. But it has extended the overall economy’s vitality.”
NAIOP’s report includes a state-by-state breakdown of hard construction values and its economic “multiplier effect” on state and local economies. The 10 states with the largest construction values, totaling $51.4 billion, accounted for 63.4% of all construction expenditures in the U.S., according to the NAIOP report.
Not surprisingly the biggest states, New York, Texas and California, led the nation in office construction value in 2015, with Iowa and Illinois following at a distant fourth and fifth place. Texas, California, Florida, New York and Pennsylvania secured top ranking for warehouse construction.
Texas, New York and Louisiana led the country in total office, heavy industrial, warehouse and retail construction value. Texas and Louisiana’s totals are typically supplemented by multi-billion-dollar energy and petrochemical and natural gas projects. California and Florida rounded out the top five U.S. construction markets in 2015.
Iowa emerged as something of a sleeper in NAIOP’s U.S. construction rankings in recent years, with oil pipeline and other energy-related projects contributing to the state totals, along with construction of other high-value projects, such as a pair of Microsoft data centers totaling $2.1 billion data center in West Des Moines.
Warehouse construction registered a fifth strong year of spending growth in 2015, gaining 10.8% from the prior year, although overall industrial real estate construction spending declined by a steep 46% due to the energy sector downturn, as well as the slowdown in global demand for U.S. manufactured goods.
Thomas Bisacquino, president and CEO of NAIOP, said commercial real estate continues to generate new jobs through business development, infrastructure improvements and “creation of places to live, work and play.” Expected resolution of tax and budgetary issues after the November U.S. election will further bolster developer and investor confidence, Bisacquino added.
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