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 | Mar 25, 2020
Engineering and construction materials prices fall for first time in 40 months on coronavirus impacts, IHS Markit says
Survey respondents reported falling prices for five out of the 12 components within the materials and equipment sub-index.
Market Data | Mar 23, 2020
Coronavirus will reshape UAE construction
The impact of the virus has been felt in the UAE, where precautionary measures have been implemented to combat the spread of the virus through social distancing.
Coronavirus | Mar 20, 2020
Pandemic has halted or delayed projects for 28% of contractors
Coronavirus-caused slowdown contrasts with January figures showing a majority of metro areas added construction jobs; Officials note New infrastructure funding and paid family leave fixes are needed.
Market Data | Mar 17, 2020
Construction spending to grow modestly in 2020, predicts JLL’s annual outlook
But the coronavirus has made economic forecasting perilous.
Market Data | Mar 16, 2020
Grumman/Butkus Associates publishes 2019 edition of Hospital Benchmarking Survey
Report examines electricity, fossil fuel, water/sewer, and carbon footprint.
Market Data | Mar 12, 2020
New study from FMI and Autodesk finds construction organizations with the highest levels of trust perform twice as well on crucial business metrics
Higher levels of trust within organizations and across project teams correlate with increased profit margins, employee retention and repeat business that can all add up to millions of dollars of profitability annually.
Market Data | Mar 11, 2020
The global hotel construction pipeline hits record high at 2019 year-end
Projects currently under construction stand at a record 991 projects with 224,354 rooms.
Market Data | Mar 6, 2020
Construction employment increases by 43,000 in February and 223,000 over 12 months
Average hourly earnings in construction top private sector average by 9.9% as construction firms continue to boost pay and benefits in effort to attract and retain qualified hourly craft workers.
Market Data | Mar 4, 2020
Nonresidential construction spending attains all-time high in January
Private nonresidential spending rose 0.8% on a monthly basis and is up 0.5% compared to the same time last year.
Market Data | Feb 21, 2020
Construction contractor confidence remains steady
70% of contractors expect their sales to increase over the first half of 2020.