Abig part of the Southeast's continuing economic expansion comes from the strength of commercial construction in the region, according to First Union Corp. economist Mark Vitner.

"New construction is reviving," said Vitner. "Commercial contracting is running 15% ahead of last year's pace across the Southeast, with the largest gains in Virginia and Florida. As bank lending continues to pick up, building activity should gain momentum."

Vitner said that demand for offices, warehouses, and retail space has whittled the region's vacancy rates to their lowest levels in decades. Office construction is up by more than a third and investment in new retail space has grown by nearly 20%, he said.

The First Union economist said that commercial development in Virginia is setting the pace regionally, with commercial contracting up nearly 60% statewide and every major metropolitan area in Virginia seeing increased building activity.

In Florida, Vitner said, contracting for office space is up more than 20%, with the largest gains in the southern part of the state and in suburban areas. Contracting for retail and industrial space is also strengthening in Florida, he added.

Not far behind Virginia and Florida is Tennessee, where commercial building activity has risen nearly 20% over the past year, according to Vitner. He said Memphis and Nashville have experienced particularly sharp growth, with tourism flourishing in those cities.

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