Despite economic challenges, the commercial real estate sector contributed $2.5 trillion to the U.S. GDP in 2023, generated $881.4 billion in personal earnings and supported 15 million jobs. That’s according to 2023 Economic Impacts of Commercial Real Estate study by the NAIOP Research Foundation.

In Maryland, the CRE sector contributed $9.1 billion to the state GDP, generated $3.4 billion in wages and salaries, and created or supported 55,017 jobs.

Overall, CRE construction experienced solid growth in 2023, although the areas of growth and contraction shifted somewhat from the previous year.

In total, crews commenced construction of 904 million square feet of commercial buildings nationwide between the end of Q3 2022 and the same time in 2023. The total value of construction was 10.7 percent higher than the previous year. The four phases of development tracked by the study – soft costs, site development, hard costs and tenant improvements – totaled $409.5 billion for the year.

Office construction expenditures reached $56.3 billion during the study period – an increase of 5.4 percent from the previous year.

Construction expenditures for manufacturing facilities totaled $79.5 billion, a 22 percent decrease since 2022. Manufacturing construction, however, had surged 217 percent from 2021 to 2022.

Warehouse construction also declined in 2023 – down 14 percent to $51.8 billion.

Retail construction saw a slight decline of 0.7 percent to $19.3 billion.

Operating expenses for existing buildings were also a major component of CRE’s economic impact. In Maryland, direct spending on operations totaled $50,976,000, generated personal earnings of $29,505,000 and supported 1,410 jobs.

The NAIOP Research Foundation study noted that the industry is facing mixed and challenging conditions in 2024.

In addition to contending with high office vacancy rates and high tenant fit-out costs, some building owners are facing increased risk of defaulting on loans. Default rates for office properties financed by commercial mortgage-backed securities grew rapidly in 2023, according to Moody’s Analytics.  Furthermore, “after the regional banking crisis in March 2023, concerns were raised about the commercial real estate loan portfolios of many U.S. regional banks,” the report stated.

The flurry of manufacturing construction is expected to peter out over the next few years as the time expires for claiming federal subsidies from the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act.

The retail sector, however, could present opportunities.

“Retail availability fell to 4.8 percent in the third quarter of 2023, the lowest level since CBRE began tracking the market in 2005,” the study says. Increased demand even improved mall occupancy by 2.5 percent.

Current projections of 1.2 percent GDP growth and 0.7 percent real business investment growth in 2024 could signal “cooling demand for construction and real estate,” the study concludes.