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 | Feb 13, 2019
Increasingly tech-enabled construction industry powers forward despite volatility
Construction industry momentum to carry through first half of 2019.
Market Data | Feb 4, 2019
U.S. Green Building Council announces annual Top 10 States for LEED Green Building in 2018
Illinois takes the top spot as USGBC defines the next generation of green building with LEED v4.1.
Market Data | Feb 4, 2019
Nonresidential construction spending dips in November
Total nonresidential spending stood at $751.5 billion on a seasonally adjusted annualized rate.
Market Data | Feb 1, 2019
The year-end U.S. hotel construction pipeline continues steady growth trend
Project counts in the early planning stage continue to rise reaching an all-time high of 1,723 projects/199,326 rooms.
Market Data | Feb 1, 2019
Construction spending is projected to increase by more than 11% through 2022
FMI’s annual outlook also expects the industry’s frantic M&A activity to be leavened by caution going forward.
Market Data | Jan 23, 2019
Architecture billings slow, but close 2018 with growing demand
AIA’s Architecture Billings Index (ABI) score for December was 50.4 compared to 54.7 in November.
Market Data | Jan 16, 2019
AIA 2019 Consensus Forecast: Nonresidential construction spending to rise 4.4%
The education, public safety, and office sectors will lead the growth areas this year, but AIA's Kermit Baker offers a cautious outlook for 2020.
Market Data | Dec 19, 2018
Brokers look forward to a commercial real estate market that mirrors 2018’s solid results
Respondents to a recent Transwestern poll expect flat to modest growth for rents and investment in offices, MOBs, and industrial buildings.
Market Data | Dec 19, 2018
When it comes to economic clout, New York will far outpace other U.S. metros for decades to come
But San Jose, Calif., is expected to have the best annual growth rate through 2035, according to Oxford Economics’ latest Global Cities report.
Market Data | Dec 19, 2018
Run of positive billings continues at architecture firms
November marked the fourteenth consecutive month of increasing demand for architectural firm services.