by Calculated Risk on 11/02/2009 04:09:00 PM

Here is a graph of office, mall and lodging investment through Q3 2009 based on the underlying detail data released by the BEA ...

Click on graph for larger image in new window.

This graph shows investment in offices, lodging and malls as a percent of GDP.

The recent boom in lodging investment has been stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has started to decline (0.21% in Q3 2009).

I expect lodging investment to continue to decline through at least 2010, to perhaps one-third of the peak (investment as percent of GDP).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by 40% (note that investment includes remodels, so this will not fall to zero). As projects are completed, mall investment will decline through most of next year. REIS recently reported the "third-quarter vacancy rate at U.S. strip malls, which include local shopping and big-box centers, rose 0.3 percentage points from the second quarter to 10.3 percent, the highest since 1992".

Office investment as a percent of GDP peaked at 0.46% in Q3 2008 and has declined sharply. Reis is reporting the vacancy rate rose to 16.5% in Q3 from 15.9% in Q2. The peak following the previous recession was 17%. With the office vacancy rate rising, office investment will also probably decline through 2010.

Notice that investment in all three categories typically falls for a year or two after the end of a recession, and then usually slowly recovers. Also office investment is usually the most overbuilt in a boom, but this time the office market struggled for a few years after the stock market bubble burst and there was comparatively more investment in malls and hotels.

As projects are completed there will be little new investment in these categories probably at least through 2010. This will be a steady drag on GDP (nothing like the decline in residential investment though), and a steady drag on construction employment.