Hit by a “significant and rapid disruption” in the economy, the commercial real estate development sector posted declines in almost every building category in the first half of 2020. The sector, however, is an increasingly large portion of U.S. GDP and is positioned to play a leading role in the economic recovery, according to a new report from the NAIOP Research Foundation.

“Midyear Economic Impacts of COVID-10 on the U.S. Commercial Real Estate Development Industry” describes how overall construction activity dropped 11 percent from midyear 2019 to midyear 2020 while total construction spending dropped dramatically — down 23.4 percent — during the same period. The size of that contraction varied among building types. Construction expenditures dropped 27.6 percent for office buildings and 26.8 percent for retail/entertainment facilities. Expenditures on warehouses rose by 0.5 percent while expenditures on non-warehouse industrial buildings dropped 38.1 percent.

“It is estimated that the value of nonresidential construction put in place for all of 2020 will decline by 18.1 percent from 2019,” the report states.

The report, however, also found that construction costs per square foot declined from mid-2019 to mid-2020. Those savings ranged from 2.3 percent to 29.1 percent, depending on building type. Factors contributing to the savings include cost-saving technologies and the use of new materials.

At the same time, the construction industry’s total contribution to U.S. GDP climbed from 19.2 percent of total GDP in mid-2019 to 21.1 percent in mid-2020.

“This increased contribution to GDP during a time of economic decline demonstrates the importance of construction spending to economic growth,” the report states. For example, during the recovery from the Great Recession, “nonresidential building construction spending led the national recovery. It averaged a 5.7% annual increase during the last nine years of the expansion, while GDP growth averaged only 2.3% during the same period.”

Government efforts to boost the business climate and accelerate review and permitting processes for new developments could strengthen the recovery from current economic conditions, the report states. “The recovery of private-sector nonresidential building construction could assist an accelerated national economic recovery in 2020 and 2021, as it did after the Great Recession. The failure to re-establish a positive business environment in support of the real estate development industry will constrain its recovery and reduce its potential for stimulating broad-based economic growth.”