Real estate aficionados understand that there are four distinct phases of the development process: (1) pre-construction (soft costs); (2) site development; (3) on-site construction (hard costs); and (4) tenant improvements.
Hard costs are easily measureable – it’s the cost for the tangible assets and expenditures for construction, like site development, labor and materials and landscaping.
In a new report by the NAIOP Research Foundation on the economic impact of CRE, construction data provided by Dodge Data & Analytics says that total hard construction expenditures for office, industrial, warehouse and retail buildings are on the rise, increasing in 2014 by 33.6 percent from 2013.
- Office construction expenditures increased by 29.8 percent in 2014, extending their gain of 23.3 percent in 2013.
- Retail construction expenditures also increased in 2014, but only slightly, increasing 1.1 percent from 2013, when they had registered a 4.8 percent gain.
- Warehouse construction registered a fourth strong year of increased expenditures in 2014, gaining 19.7 percent. In 2011, expenditures for warehouse construction increased 8 percent; in 2012, they increased another 28.4 percent; and in 2013, they increased 38.1 percent.
- Industrial construction spending increased sharply in 2014, gaining 74.2 percent, following a strong gain in 2013, when it increased 48.3 percent. These increases in construction spending have made industrial construction the largest category of the four for the value of new spending in 2014.
Download “Economic Impacts of Commercial Real Estate, 2015 Edition” by Dr. Stephen S. Fuller and published by the NAIOP Research Foundation in June 2015.
So what does it all mean? The economic impact of this construction activity can be calculated by applying the national construction multipliers for its contribution to GDP, personal earnings and employment.
With the multipliers in place, we find the proverbial bottom line: The total contribution to U.S. GDP of all structures combined across all phases of development is substantial. The $87.8 billion in hard construction expenditures (hard costs) for office, industrial, warehouse and retail buildings in 2014 added $183.0 billion in indirect and induced benefits to the national economy for a total contribution of $270.8 billion to GDP.
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.
Kathryn Hamilton is Vice President for Marketing and Communications at NAIOP Corporate.