Commercial real estate is a powerful economic engine, and nowhere is that more true than in the Lone Star State.

CRE contributed $185B to Texas’ gross domestic product and supported 1.2 million jobs in 2023, according to an annual report by the NAIOP Research Foundation. All four of the major commercial asset types — office, warehouse, industrial and retail — ranked No. 1 in the nation for total contributions to state GDP.

“Texas has a lot going for it,” CBRE Global Chief Economist Richard Barkham said at a Bisnow event last week. “It’s the secret sauce … it’s about lower taxes, it’s about lower housing costs, it’s about availability. All of those things are giving you outperformance, and it’s not rocket science.”

CRE propelled the national economy as well, even as rising interest rates stymied deals. New development in 2023 paired with the operations of existing buildings generated $2.5T for the U.S. economy, $881B in personal earnings and 15 million jobs, per NAIOP’s report.

“We are seeing some adjustment in construction activity, notably in the industrial sector, whose growth had been on a record-setting trend following changes to the retailing paradigm driven by the pandemic and other economic forces,” NAIOP President and CEO Marc Selvitelli said in a statement. “We are bullish that as those forces settle out, commercial real estate will expand in 2024.”

With the exception of the office industry, most real estate in Texas is in fine shape, even if it has dropped in value, Barkham said.

The Federal Reserve has thus far managed to avoid a recession, and a soft landing is now more of a consensus than a hope, Barkham said.

Commercial real estate has been one of the industries hardest hit by tightened monetary policy, but it is poised to emerge from the crisis in a relatively strong position, he added.

“Real estate is experiencing a classic end-of-cycle. We had a period of strong development, that development is on the market now when the demand is weak, so you’ve got rising vacancy,” Barkham said. “Compared to the last three or four end-of-cycle events that we’ve seen in real estate over the past 40 years, this is a relatively mild one.”

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