The Southeast and Texas offer the most favorable conditions for commercial construction, claiming seven of the top 10 markets in CBRE’s inaugural Development Opportunity Index. CBRE’s Index analyzes a spectrum of variables in the 50 largest U.S. markets to determine rate the highest for development opportunities across various asset classes.
U.S. construction activity is expected to bounce back in 2021, after a slowdown in 2020 due to challenges brought by COVID-19, including temporary work stoppages and difficulty sourcing various materials from abroad. Since the start of the pandemic, momentum has varied across commercial real estate sectors – development largely progressed in the multifamily and industrial & logistics sectors, but activity slowed—and in some cases stalled—for retail, hotels and speculative office development.
“We expect to see an uptick tenant fit-out projects in 2021 as employers redesign and reconfigure spaces to accommodate new standards in health, wellness and safety,” said Jim Dobleske, CBRE Global President of Project Management. “Costs, however, aren’t likely to change much; markets with high costs of land and labor won’t get much cheaper, if at all.”
CBRE’s Development Opportunity Index ranks markets based on development conditions including property performance across each of the major commercial real estate asset classes, construction costs, strength of supply, prior and forecast performance.
“Southern states continue to rate highly for development and construction conditions, though investors looking for development opportunities can find them in every market,” said James Millon, a Vice Chairman in CBRE’s Debt & Structured Finance practice. “Southern states often have job growth, in-migration and cost advantages that drive high volumes of construction activity.”
An overall top-10 ranking doesn’t necessarily mean that market is among the best for every asset class.
For example, CBRE’s analysts ranked San Jose as the best positioned market for office construction due to its supply growth and strong absorption. Phoenix – reflecting its shrinking vacancy and strong absorption -- and San Francisco – with strong rent growth – also are attractive office markets for development.
For industrial & logistics construction, Atlanta ranks highest due to its balance of strong inventory growth and net absorption. Also ranking well are Phoenix because of its affordable land and labor, and Dallas due to its relatively low costs and strong population growth.
Houston tops the index of ideal markets for retail construction due to that market’s strong consumer spending and sustained absorption of retail space. Next are Dallas and Atlanta, which both offer stable costs and good absorption of retail space.
For multifamily construction, the top markets are Orlando, Phoenix and Denver. Each offers strong population growth, job gains and relatively low costs.
To download the report, click here.
Related Stories
Market Data | May 12, 2020
6 must reads for the AEC industry today: May 12, 2020
A 13-point plan to reduce coronavirus deaths in nursing homes and Bjarke Ingels discusses building on Mars.
Market Data | May 11, 2020
Interest in eSports is booming amid COVID-19
The industry has proved largely immune to the COVID-19 pandemic due to its prompt transition into online formats and sudden spike in interest from traditional sports organizations.
Market Data | May 11, 2020
6 must reads for the AEC industry today: May 11, 2020
Nashville residential tower will rise 416 feet and the construction industry loses 975,000 jobs.
Market Data | May 8, 2020
Construction industry loses 975,000 jobs in April as new association survey shows deteriorating demand for construction projects
Association partner Procore also releases near real-time construction data measuring impacts of coronavirus as association calls for new measures.
Market Data | May 8, 2020
7 must reads for the AEC industry today: May 8, 2020
The death of the office and Colorado's first multifamily project to receive WELL Precertification.
Market Data | May 7, 2020
5 must reads for the AEC industry today: May 7, 2020
5 memory care communities with a strong sense of mission and making jobsites safer in the COVID-19 world.
Market Data | May 6, 2020
6 must reads for the AEC industry today: May 6, 2020
5 questions engineers will ask after COVID-19 and coronavirus threatens push for denser housing.
Market Data | May 5, 2020
5 must reads for the AEC industry today: May 5, 2020
A new temporary hospital pops up in N.J., and apartment firms' reactivation plans begin to take shape.
Market Data | May 4, 2020
6 must reads for the AEC industry today: May 4, 2020
How working from home is influencing design and is this the end of the open office?
Market Data | May 4, 2020
The Los Angeles market continue to lead the U.S. hotel construction pipeline at the close of the first quarter of 2020
Nationally, under construction project counts hit a new all-time high with 1,819 projects with 243,100 rooms.