Commercial real estate props up economy.

The commercial real estate development sector not only has kept the economy from stalling in the face of the slowing housing market, but it's also been a significant driver of economic growth, according to a study commissioned by the National Association of Industrial and Office Properties (NAIOP), Herndon, Virginia.

The study, The Contribution of Office, Industrial and Retail Development and Construction on the U.S. Economy, noted that the commercial real estate development industry is also one of the leading U.S. employers, supporting 4.2 million full-time equivalent jobs in 2005 and generating personal earnings of $155.8 billion.

Each $1 million spent in new construction supports 28.5 full-time jobs, explained study author Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, Fairfax, Virginia.

"By 2005, all subsectors of nonresidential construction were accelerating, helping to offset slowing residential building construction outlays in 2006 and 2007," said Fuller. "This counterbalance kept the national economy from experiencing a sharper slowdown in the face of rising energy costs and lost output due to Hurricanes Katrina and Rita."

Using 2005 data--the latest comprehensive data available--Fuller said he determined that in 2005 commercial real estate spending added $498.4 billion to the gross domestic product (GDP), which was $11.9 trillion that year. By comparison, the federal government contributed $498.8 billion to the 2005 GDP.

The basis of commercial real estate's ongoing sustainability lies in its three phases of development: 1) soft costs--such as architects, engineering, marketing, legal and management--site development and tenant improvements; 2) hard costs or actual construction costs; and 3) building operations--such as maintenance, repair, custodial services, utilities and management.

Combined, these three phases represent commercial real estate development's enduring financial strength and compounded economic impact, said Fuller.

Broken down financially: $228.9 billion was spent on soft costs, site development and tenant improvements; another $265.9 billion was spent on the hard costs, or actual construction outlays and ongoing maintenance; and operating costs added the remaining $3.6 billion to the GDP, said the report.

The report also identifies the top 10 states by construction value in four categories--office, industrial, warehouse and retail--and by the number of jobs and increase in personal income tied to that construction.

Texas leads in industrial construction, while California leads in the other three categories. Overall, for total commercial construction, California ranks first; Texas second; and Florida third, followed by Georgia, Illinois, Indiana, New York, Ohio, Virginia and Arizona, according to the report.

The report represents the first time the commercial real estate industry has been able to quantify the numbers that demonstrate the industry's considerable and sustained contribution to the U.S. economy, noted NAIOP President Thomas J. Bisacquino.

"With that kind of growth, it isn't surprising that the economy continues to absorb the blows it is taking from oil prices, housing declines and other negative influences," said Bisacquino. "Commercial real estate development has an immense ripple effect in the economy, providing wages and jobs that quickly roll over into increased consumer spending."