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Infrastructure (image) infrastructure (image)


Infrastructure Investment and Jobs Act: Why it Matters for CRE

Learn the significance of the infrastructure bill, which regions will benefit the most and how it will impact the U.S. economy and commercial real estate (CRE) property markets.

On November 15, President Biden signed the bipartisan Infrastructure Investment and Jobs Act (IIJA) into law. Carved out of the more aggressive Build Back Better vision, it marks one of the most significant investments in physical infrastructure in the U.S. in at least half a century. In this report, we provide our quick take on the following: 

  • The infrastructure bill and what’s significant about it  
  • Which regions will benefit the most from it 
  • How it will impact the U.S. economy and property markets   
Key Takeaways 
  • It is estimated that the infrastructure bill will raise GDP growth by a cumulative 3.5% from 2022-2031, and long-term GDP growth by 0.1% per annum.  
  • The IIJA is not expected to place any material pressure on near-term inflation as the money takes time to get dispersed, and it could result in downward pressure on prices longer-term through expected efficiency and productivity gains.  
  • Industrial is the biggest winner, but all property types stand to benefit. 
  • As a result of the infrastructure bill, we estimate that total demand for commercial real estate space could be about 1.2% higher over the next five years.  
What is the infrastructure bill? 

The IIJA is a $1.2 trillion infrastructure package that has two key components. The first is the reauthorization of $650 billion of prior mandatory funding that would have occurred under current law. This is spending from various trust funds that is automatically raised and already allocated to pre-existing programs. For example, surface transportation programs under the Highway Trust Fund. Funding is also pre-determined for these programs. Examples include excise taxes on the sale of motor fuel, trucks and trailers and truck tires. 

The second component is the additional $550 billion in funding for new investments in infrastructure.1 These range from significant increases in funding for highways and roads to the electric grid, passenger rail, broadband, water infrastructure, environmental resilience and remediation, public transit, waterways, ports, airports and other investments. 

Infrastructure Investment & Jobs Act: $550 Billion in New Spending

What is its significance? 

The U.S. has under-invested in infrastructure for decades. From 2015 to 2020, non-defense government infrastructure investment was at its lowest level on record, dating back to the immediate post-WWII period. Indeed, since 1929, the U.S. federal government has cumulatively invested a total of 0.4% of real GDP in physical infrastructure and that includes defense investment. U.S. state and local governments have invested a total of only 2.4% over that same timeframe. This means that, since 1929, out of the $678 trillion of economic output the U.S. has created, it has only publicly invested a total of $19.1 trillion in infrastructure.2 To put recent trends into global perspective, the U.S. ranks among the lowest in relative infrastructure investment since 2007. Of economies that have cumulatively produced at least $10 trillion in output from 2007-2020, the U.S. ranks 15th out of 17. Out of 56 countries for which data is available, the U.S. ranks 53rd.3

Historical Infrastructure Spending Real Public Spending on Structures as a % of Real GDP

Moreover, returns on infrastructure investment tend to be high. This is true in the private and public sectors: the 10-year return on private capital is estimated to be about 10%, and for public capital, almost 7%.4 Said differently, a $1 increase in public infrastructure investment would yield $0.07 of additional GDP over 10 years. During a period of extremely low interest rates—historically—and one where the return versus cost of capital spread is so large, there is a compelling financial argument to make such investments now. 

Cumulative Government Spending on Infrastructure
Real Investment in Structures by Type (Billions), 1929-2020

Total Federal Investment in Structures

Total S&L Investment in Structures

Lastly, in 2021, the American Society of Civil Engineers graded U.S. infrastructure a “C-.” While above “D” for the first time in 20 years, an improvement to a still subpar grade is hardly something to celebrate when it relates to the productive capacity and functioning of one of the largest economies on earth. The ASCE estimates that the funding needed to close the “infrastructure grade gap” is $2.6 trillion over the next 10 years, and that, if not addressed, it could cost the U.S. economy $10 trillion by 2039. 

These findings are evidenced by the incredible mismatch in the timing of investment versus economic activity. From 1929-2020, about 50% of cumulative economic activity (measured by real GDP output) occurred in the 70-year period from 1929-1999. However, 85% of the federal and 62% of state and local government’s cumulative infrastructure investment occurred prior to 2000. There are productivity gains to be had by increasing quality, reducing friction, and improving resiliency in the nation’s infrastructure, which in turn raise the level of GDP over time. The only question about the magnitude of the GDP impact is to what extent deficit financing and higher debt crowd out private investment. 

Cumulative Infrastructure Investment vs. Output Of the 1929-2020 Cumulative U.S. Total

Could this be inflationary? 

Probably not. There are a few key reasons why this is the consensus view: 

  • Current inflation is being driven by re-opening and other episodic factors that should abate before most of the funding enters the real economy mid-decade. Read how shifts in consumer spending patterns—patterns that are expected to normalize from current unsustainable levels—and idiosyncratic supply chain issues are driving near-term price pressure. Most inflation today is cost-push and will be alleviated as production ramps up, energy prices moderate, and an abatement in chip shortages take the edge off auto-related inflation. 

  • The Federal Open Market Committee (FOMC) has also pivoted to a more hawkish stance than just a few months ago. After announcing an intention to taper asset purchases at a rate of $15 billion per month starting in December 2021, it announced, after its December meeting, an acceleration in the pace of tapering (to $30 billion per month). Since full tapering was a prerequisite for rate lift off, this had pulled forward market-based and professional forecasters’ expectations of the first federal funds rate increase into 2022. This was corroborated by new projections from FOMC members, the majority of which now expect three rate hikes in 2022.

  • The additional funding provided by the IIJA does not amount to much in any given year, certainly not enough to move the macroeconomic needle into generating additional inflation. Peak federal outlays are expected to occur mid-decade when they are forecast to be just 0.2% of total nominal GDP. Typically, those outlays go to state and local governments who then also need to disburse the money before it enters the real economy. Thus, there is a significant lag between when money leaves the U.S. Treasury and when it starts to affect economic activity. 
Are there regional winners? 

The IIJA added new spending through various federal agencies, and the destination of many funds remains unknown. However, some state-specific funding was approved for specific kinds of infrastructure. Nominally, the largest states (population-wise) will also receive the greatest amount of funding, such as California, Texas, New York, Florida, Illinois, Pennsylvania, New Jersey, Ohio, Georgia and Michigan. On a per capita basis, less populous states like Alaska, Wyoming, Montana, Vermont, North and South Dakota, West Virginia, Delaware, Rhode Island and Hawaii also will receive higher rates of funding. 

The types of spending allocated to the states also varies, with many of the least populated states just mentioned getting an outsize share (measured by per capita spending) of federal highway aid. Much of the New England and Mid-Atlantic Corridor, by contrast, is receiving an outsize share of public transportation funding—likely due to the higher density and extensive infrastructure already in place in the region. Alaska, Illinois, California and Washington are states outside the Northeast with higher rates of public transit funding. Rankings vary depending on the type of spending, but federal highway and public transit aid account for nearly 80% of the state-specific allocations.  

Timing of Spending

What does it all mean for CRE? 
Seeing that nearly all goods that U.S. consumers purchase weave their way through a domestic maze of transportation and warehousing, industrial has stood out as a clear beneficiary of the IIJA. However, the main mechanism through which all commercial real estate is affected by the IIJA, including industrial, is through the indirect effects it has on the economy via higher productivity, which buttresses long-term output. Moody’s Analytics estimates that the IIJA could raise near-term GDP growth by a cumulative of 3.5%, resulting in an additional $758 billion of output by 2031. Moody’s Analytics also estimates long-term GDP growth will be 0.1% higher per annum. 

Based on the relationship between growth in total economic output and real estate demand, we find that total demand for office, industrial, retail and multifamily real estate could be about 1.2% higher over the next five years. That is, if pre-IIJA total demand was 100 msf for example, then the effect of the IIJA is to raise marginal demand by 1.2 msf. The boost is highest for industrial (1.5%) and lowest for retail (0.8%).

Last but certainly not least, laced throughout the IIJA are multiple provisions supporting decarbonization, energy efficiency, weather-related resilience and a host of other ESG-oriented programs that will ultimately impact real estate in addition to providing opportunities. Stay tuned for a more detailed report on these in early 2022. 

If you would like to read more about policy developments since the onset of COVID-19, explore our COVID-19 Policy Tracker or view our summary of Biden’s first 100 days.

1  IIJA also included $16 billion in additional tax cuts and changes to mandatory spending that bring estimates of budget authority to $566 billion. Thus, some estimates of the IIJA’s total impact may exceed $550 billion.
 These figures are in real 2012 dollars. Physical infrastructure includes all forms of spending on various kinds of structures and excludes spending on equipment and intellectual property.
Source: Cushman & Wakefield Research calculations based on data from the Global Infrastructure Hub External Link.
CBO estimates the return on public investment to be 5%, but it attributes this to higher rates of investment in education and R&D versus the private sector’s return on investment in physical capital External Link. This bill targets physical capital and thus the assumed rate of return is higher than CBO’s estimate. The source for the 7% return assumption is Moody’s Analytics.


Rebecca Rockey New York Research
Rebecca Rockey

Deputy Chief Economist, Global Head of Forecasting • Washington


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