Real Estate’s Contribution to the U.S. Economy Holds Up During the Pandemic

June 15, 2022

The real estate sector’s massive contribution to the U.S. economy held up, and even increased by some measures, during the COVID-19 pandemic. So concludes the annual NAIOP report “Economic Impacts of Commercial Real Estate” (2022).

The study analyzes the impacts of new development and the operations of existing commercial real estate in the U.S. — office, industrial, retail and multifamily — and measures the economic contribution of the industry to GDP, salaries and wages generated, and jobs supported from the development, construction and operations of buildings, including housing, infrastructure and government facilities.

Economic Contributions from Construction

The broadest measure of the NAIOP report calculates the contribution of building and nonbuilding construction, including residential, nonresidential and infrastructure projects in the pipeline.

Data for the past 10 years reveals a pattern of consistent annual growth for building and nonbuilding construction as measured by direct expenses, total economic contribution to GDP, percent contribution to GDP and jobs supported. Nearly every metric in each of the four categories increased year-over-year for the decade. Even 2020 yielded an increase by all measures when compared to pre-pandemic 2019, and again in 2021 (except for a slight decrease in percent contribution to GDP).

Highlights include:

• Direct expenses by the real estate sector nearly doubled from $857 billion in 2012 to $1.6 trillion in 2021
• The sector’s total economic contribution to GDP nearly doubled from $2.3 trillion to $4.2 trillion
• The sector’s percent contribution to GDP increased from 16.3% to 18.3%
• Jobs supported by the sector increased by more than 41%, from 20.1 million to 28.5 million

In terms of commercial real estate specifically, 2021 saw direct expenditures of $434 billion by the development and operations segments that contributed $1.2 trillion to the U.S. gross domestic product, generated $418.7 billion in personal earnings and supported 8.5 million jobs.

The Pandemic’s Influence on Commercial Real Estate

Although the construction industry lost 1.1 million jobs in March and April 2020, by November 2021, it had added back 1 million jobs. Aside from the impact on labor, the construction industry was mostly spared the negative impact from the pandemic recession. Continued demand for new construction and construction inputs (design services, construction goods and labor) means that the industry has been a strong catalyst for economic recovery and continues to lead the overall U.S. economic recovery from the pandemic, according to the NAIOP report.

As a result of the pandemic, all industries are going through a paradigm shift in the way business is conducted. The face of commercial real estate is changing dramatically but has continued to expand because of the change. One such shift has been less office building development and more industrial/warehouse development. This includes warehouses for e-commerce, as well as self-storage facilities, and certain expanded retail spaces for grocery stores and pharmacies.

The demand for new types of spaces has been impacted by social distancing, shutdowns, quarantines, worker safety and hybrid working. Older office space that is ill-equipped to provide health and safety amenities may become obsolete or require extensive renovation or overhauling. A focus on so-called “healthy buildings” has already begun to eclipse sustainability issues as a concern. All of this upheaval in how business is done and how lives are lived may create new opportunities for the commercial real estate industry in the long run, the report says.

Top 10 U.S. States by Development Impacts in 2021

Since 2008, the NAIOP Research Foundation has conducted this study for purposes of estimating the annual economic contribution of commercial real estate development and operations to the U.S. economy. The study is used by real estate professionals and municipal, state and federal government officials to understand and quantify the industry’s economic impacts and benefits.