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Commercial Sites' Costs Boost Economy

July 3, 2007
By KENNETH R. GOSSELIN, Courant Staff Writer

Erecting a new office tower or shopping center can grab the headlines as construction vehicles crawl over a site for weeks or months, marshaled by platoons of workers.

But once they leave, new commercial development can add millions of dollars to the economy just by being there - not even considering the business that goes on inside the buildings.

A national commercial real estate industry group recently released a report that captures the often-ignored benefits to the economy by examining new buildings constructed in 2005 and how their operating costs helped boost the economy.

In Connecticut, commercial buildings constructed in 2005 pumped $18.8 million in direct spending into the state's economy in the form of maintenance, repairs, building management and security, utility bills and property taxes, the report said.

By itself, one year of new building costs can seem to provide only a modest boost for a state that produced $195 billion in goods and services in 2005, the only year addressed in the report. But the new building costs are added on top of the millions of square feet of commercial space already being operated in the state.

"It's more of an important contributor to the economy than some people realize," said Daniel Kennedy, an economist at the state Department of Labor. "Just the operations of the buildings are making a significant contribution to the economy."

The cost of operating industrial buildings was not included in the study because building uses vary too widely to make accurate estimates, the report said.

You might expect the study to extol the virtues of commercial real estate development because it was commissioned by the National Association of Office and Industrial Properties, based in Washington, D.C. But it was also conducted by the well-known, independent Center for Regional Analysis at George Mason University in Fairfax, Va.

The study was national in scope and examined each of the 50 states. It's author, Stephen S. Fuller, was not available for comment Monday.

In 2005, new commercial construction in Connecticut totaled $1.7 billion, including offices, warehouses, retail establishments and manufacturing facilities. The majority of that - $1.1 billion, or 64 percent - consisted of retail, which includes stores and entertainment. The strong retail construction numbers reflect casino expansion in southeastern Connecticut.

When those buildings were up and running, the stores and entertainment facilities added the most to the state's economy by far - $10.7 million. That was followed by office buildings, at $7.3 million, and warehouses, at $844,000.

Pat McPherron, an economist at Moody's Economy.com, said that although operating expenses are key, what is more important is that the buildings are being occupied by tenants, which are carrying the heavy load of keeping the economy growing.

"You can't just build it," McPherron said. "You have to have the demand, too."

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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