Economy Watch: Office, Hotel Sectors Grow as Percentage of GDP

Investment in office properties, along with hotels, have both increased as a percentage of the total economy. Retail, not so much.
Credit: Bureau of Economic Analysis, National Income and Product Accounts Gross Domestic Product: Second Quarter 2016 (Advance Estimate)

Credit: Bureau of Economic Analysis, National Income and Product Accounts Gross Domestic Product: Second Quarter 2016 (Advance Estimate)

One measurement of the post-recession recovery of the real estate sector is how much investment in various property types represent as a percentage of U.S. gross domestic product. According to recent data published by the Bureau of Economic Analysis, investment in office properties, along with hotel properties, have both increased as a percentage of the total economy. Retail, not so much.

Investment in offices increased in second-quarter 2016, and is up 22 percent year-over-year. Currently that sector represents about 0.35 percent of U.S. GDP; as recently as 2011, its share is less than 0.2 percent, down from a pre-recession peak of over 0.4 percent. Even that was a pale reflection of the go-go 1980s, when investment in office properties peaked at 0.9 percent of the entire economy for a time. It’s unlikely those heights will be reached again anytime soon.

As for investments in hotels, that’s currently up 19 percent year-over-year in the second quarter, and now stands around 0.175 percent of GDP. Before the recession, its share was as high as 0.3 percent, but historic norms for the property type are between 0.1 percent and 0.2 percent of GDP, so arguably the current share is “normal.”

Investment in retail properties is more or less stagnant, according to the BEA, hovering at around 0.1 percent of GDP. That’s where it’s been since the recession. Historically, at least during a number of decades—especially the 1960s and ’80s, when demand for retail was high—investment in retail was well over 0.2 percent or 0.25 percent of GDP.