Construction was one of the hardest-hit sectors during the Great Recession that began in December 2007 and ended in June 2009. The value of total construction put in place, according to data provided by the U.S. Census and a new report from the NAIOP Research Foundation, decreased from $1.167 trillion to $778.2 billion, a decline of 33.3 percent, from its peak in 2006 to the bottom of the business cycle (for the construction sector) in 2011.
Download “Economic Impacts of Commercial Real Estate, 2015 Edition” by Dr. Stephen S. Fuller and published by the NAIOP Research Foundation in June 2015.
For nonresidential construction (buildings and nonbuildings), the value of construction activity peaked in 2008 and declined 25 percent over three years to 2011, when construction spending began the recovery that registered a solid gain of 5.4 percent in 2014.
The report says it has taken five years of recovery in the national economy to bring the construction sector to a point that supports continuing year-over-year increases in construction spending. In 2014, the total value of construction put in place was 21.8 percent greater than construction spending in 2011.
Current forecasts show the construction sector continuing its upward trend in the value of construction put in place, although different building types will experience different performance patterns. Nonresidential building construction spending presents an uneven growth trend that is being impacted by some weakness in manufacturing and energy-related construction in 2015 and 2016, while construction spending for retail, office and health care buildings is projected to remain strong in 2015, peak in 2016 and 2017 and continue to grow through at least 2020.
Notably, the report says that construction spending for four types — office, retail, transportation (which, in the U.S. Census data set, includes warehouse properties) and manufacturing — has tracked a relatively smooth pattern through each category’s respective growth cycle. Since the bottom of the cycle in 2011, total construction spending for 10 nonresidential building types has increased 14.0 percent.
Over this period, four building types — health care, education, public safety and religious — experienced a decrease in construction spending, while strong gains have been registered by retail (31.2 percent), manufacturing (33.6 percent), office (28.9 percent), lodgings (83 percent) and transportation/warehouse (20 percent).
Some sectors have not recovered the jobs lost during the downturn, and their growth has been uneven from quarter to quarter. The report says that while employment growth accelerated in 2014 and has exceeded 200,000 net new jobs per month for a full year, the types of jobs being generated have had a lower GDP-value per job than the jobs that were lost during the recession, resulting in lower average household incomes each year since 2010. Unemployment has declined faster than projected in 2014, but this has raised concerns that wage inflation will become a factor impacting the economy’s performance in 2015, along with higher interest rates.
This is part of a series of informational posts on the Research Foundation’s valuable report, “Economic Impacts of Commercial Real Estate, 2015 Edition.” Download the full report and check back for more analysis and excerpts from Market Share.
Kathryn Hamilton is Vice President for Marketing and Communications at NAIOP Corporate.