US Infrastructure Package May Boost Commercial Real Estate

Dec 15, 2021

The $1.2 trillion infrastructure package passed by Congress and signed by President Biden in November 2021 promises to build opportunities in the commercial real estate sector for years to come. But that promise comes with a big caveat: labor shortages, supply chain problems and material costs could throw a wrench into future projects.

The multifamily segment of commercial real estate stands to benefit significantly from the impending flood of infrastructure spending.

Perhaps most noteworthy for the commercial real estate industry is the $166 billion in infrastructure spending earmarked for affordable housing, home construction and rehabilitation, and rental assistance and housing vouchers. Among other things, the money would go toward building or preserving about 1 million homes.

Elements of the $166 billion in funding include:

  • $65 billion for public housing programs.
  • $10 billion for the HOME Investment Partnerships Program, which helps fund homes for low-income people.
  • $15 billion for the creation of new rental housing for the lowest income households.
  • $24 billion for housing vouchers.
  • $750 million for a fund to support private investment in housing. The fund will provide capital to increase the affordability, accessibility, and quality of American housing.

While not directly aimed at the commercial real estate sector, the package contains other funding that is poised to bolster it as well.

For transportation, there’s $66 billion for passenger and freight rail, $39 billion for the modernization and expansion of transit systems, and $7.5 billion for a nationwide network of charging stations for electric vehicles (EVs).

This combined $112.5 billion in spending should dramatically aid the movement of goods and people throughout the country, opening commercial real estate development opportunities in places that aren’t easily accessible right now. Furthermore, amenities like EV charging stations can make office buildings, multifamily developments, and other properties more attractive to tenants.

The package also features $65 billion to rebuild the country’s outdated electric grid.

Improving the electric grid is important for building owners because as the country focuses on using more renewable energy sources and less on fossil fuels, the electric grid will be integral in properly managing a more complex distribution of energy.

On top of that, a modern electric grid could help prevent power blackouts at any number of properties, such as multifamily developments and office buildings. According to the U.S. Department of Energy, power outages hurt the U.S. economy to the tune of $28 billion to $169 billion each year.

Another $65 billion is earmarked for the nationwide expansion of broadband internet access. An estimated 19 million Americans, particularly minority and low-income people, lack access to high-speed internet service. The $65 billion will not only help millions of U.S. households, but it could give some landlords — particularly those who own older properties — the chance to offer broadband internet service, one of the top three features requested by potential tenants. Additionally, as more adults are working from home and choosing to live in areas far from their employers, expanded broadband in more areas may lead to more housing development in places that were previously underdeveloped.

Although the infrastructure spending package could pave the way for many opportunities, one shouldn’t expect any large-scale projects backed by the $1.2 trillion in infrastructure spending to get underway for another two to three years, said Brian Oakley, an executive vice president at commercial real estate services provider JLL. Even then, lingering effects from current labor shortages, ongoing supply chain problems and rising material costs could slow progress on infrastructure projects that aren’t yet shovel-ready.

The boost in infrastructure activity will result in more construction, which in turn is almost certain to exacerbate labor shortages, further clog up the supply chain, and bump up the costs of steel, cement, and other construction materials.

As it relates to materials, Associated Builders and Contractors, a trade group, says steel prices soared 142 percent from October 2020 to October 2021. Prices for other construction materials have been on the rise as well. Amid that environment, private developers will compete against government agencies for steel and other materials to build infrastructure projects. Meanwhile, shipment of infrastructure-related construction materials from foreign manufacturers to U.S. contractors will clog up the supply chain even more.

Ultimately, the $1.2 trillion infrastructure package could deliver many opportunities — and potentially hefty returns — to developers and investors in the country’s multi-trillion-dollar commercial real estate industry. Those who carefully and successfully navigate labor shortages, supply chain issues and material costs could stand to benefit greatly from the direct and indirect impacts of this historic legislation.

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