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Sunday, March 03, 2013

Q4 2012 GDP Details: Commercial Real Estate investment very low, Single Family investment increases

by Calculated Risk on 3/03/2013 04:30:00 PM

Here is some investment data from the BEA (Note: The BEA released the underlying details for the Q4 second GDP report on Friday). The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

Investment in offices is down about 55% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.

Office Investment as Percent of GDP Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 63% from the peak (note that investment includes remodels, so this will not fall to zero).   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 73%.   With the hotel occupancy rate close to normal, it is possible that hotel investment will increase this year.

Residential Investment ComponentsThe second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is now increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $159 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $143 billion (SAAR) (or 0.9% of GDP).  Single family structure investment will probably overtake home improvement as the largest category of residential investment later this year.

Brokers' commissions increased slightly in Q4 as a percent of GDP. And investment in multifamily structures increased in Q4. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.