commercial real estate market survey 2014-08-26

8/11/2019 Commercial Real Estate Market Survey 2014-08-26

http://slidepdf.com/reader/full/commercial-real-estate-market-survey-2014-08-26 1/10



AUGUST 2014

Download this report from:

www.realtor.org/reports/commercial-real-estate-market-survey

THE NATIONAL ASSOCIATION OF REALTORS®, “The Voice for Real Estate,” is America’s largest trade

association, representing 1.0 million members involved in all aspects of the residential and commercial realestate industries.

Although the information presented in this survey has been obtained from reliable sources, NAR does not

guarantee its accuracy, and such information may be incomplete. This report is for information purposesonly.

Copyright © 2014 NATIONAL ASSOCIATION OF REALTORS®. Reproduction, reprinting or retransmissionin any form is prohibited without written permission. For questions regarding this matter please [email protected].

2ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics



AUGUST 2014

The REALTORS® Commercial Real Estate Market Survey measures

quarterly activity in the commercial real estate markets. The survey

collects data from REALTORS® engaged in commercial real estate

transactions The survey is designed to provide an overview of market

performance, sales and rental transactions, along with information on

current economic challenges and future expectations.

The first estimate of gross domestic product for the second quarterregistered a 4.0 percent annual rate of growth. Economic activity wasdriven by growth in consumer spending and positive businessinvestments. Companies increased their spending on commercial realestate by 5.3 percent.

Riding favorable economic tailwinds, commercial REALTORS®reported continued market improvements in the second quarter 2014.REALTORS® rated the direction of commercial business opportunities

4.9 percent higher in the second quarter 2014.

Sales of commercial properties rose 6.7 percent on a year-over-yearbasis. Properties traded at average prices which were higher by 3.4percent compared with the same period in 2013.

3

EORGE RATIU

rector, Quantitative &mmercial Research

ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2 0 0 8 . Q 4

2 0 0 9 . Q 2

2 0 0 9 . Q 4

2 0 1 0 . Q 2

2 0 1 0 . Q 4

2 0 1 1 . Q 2

2 0 1 1 . Q 4

2 0 1 2 . Q 2

2 0 1 2 . Q 4

2 0 1 3 . Q 2

2 0 1 3 . Q 4

2 0 1 4 . Q 2

P e r c e n t C h a n g e , y e a r - o v e r - y e a

r

Sales Volume Sales Prices

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2 0 0 8 . Q 4

2 0 0 9 . Q 2

2 0 0 9 . Q 4

2 0 1 0 . Q 2

2 0 1 0 . Q 4

2 0 1 1 . Q 2

2 0 1 1 . Q 4

2 0 1 2 . Q 2

2 0 1 2 . Q 4

2 0 1 3 . Q 2

2 0 1 3 . Q 4

Direction of Business Opportunity

Source: National Association of Realto



AUGUST 2014

Cap rate compression eased, with a 34basis point decline year-over-year.

Average cap rates declined from 8.7percent in the second quarter 2013 to 8.3percent in the second quarter of this year.Hotels posted the lowest average caprates, at 8.0 percent, closely followed byapartments, at 8.1 percent. Office and

retail spaces posted cap rates of 8.9percent and 8.2 percent, respectively.Industrial properties recorded capitalizationrates of 8.4 percent.

The average transaction price movedsideways, at the $1.4 million mark duringthe second quarter. Pricing tied with localeconomic conditions as the second-most

significant concern for commercialREALTORS®. The shortage of availableinventory retained its number one spot, asmembers reported not finding enoughsuitable properties. Following severalyears at the top of the list of concerns,financing remained in a distant third placefor the second quarter in a row.

Leasing fundamentals moved in tandemwith sales on an upward trend line.Demand for space increased, with leasingvolume rising 4.2 percent over the firstquarter. Supply conditions quickenedpace, with new construction gaining 4.3percent in the second quarter 2014, on theheels of a 4.0 percent increase lastquarter.

4

2014.Q2 Cap Rates

Office 8.9%

Industrial 8.4%

Retail 8.2%

Multifamily 8.1%

Hotel 8.0%

2014.Q2 Vacancy Rate

Office 16

Industrial 13

Retail 14

Multifamily 6

Hotel 15


5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

2 0 1 0 . Q 1

2 0 1 0 . Q 2

2 0 1 0 . Q 3

2 0 1 0 . Q 4

2 0 1 1 . Q 1

2 0 1 1 . Q 2

2 0 1 1 . Q 3

2 0 1 1 . Q 4

2 0 1 2 . Q 1

2 0 1 2 . Q 2

2 0 1 2 . Q 3

2 0 1 2 . Q 4

2 0 1 3 . Q 1

2 0 1 3 . Q 2

2 0 1 3 . Q 3

2 0 1 3 . Q 4

2 0 1 4 Q 1

REALTORS® Commercial Capitalization Rates

Office Industrial Retail

Multifamily Hotel


-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

% C

h a n g e , Q u a r t e r - o v e r - q u a r t

e r

New Construction Leasing Volume




AUGUST 2014

Availability rates declined for all propertytypes, except retail buildings. Officevacancies declined 17 basis points, to 16percent, while industrial availabilitydeclined 55 basis points, to 13.2 percent.Multifamily vacancy reached 6.0 percent, 74 basis point advance. Retail availabilityincreased 37 basis points to 14.6 percent

REALTORS® expect inventory availabilityto remain decline 0.9 percent over the ne12 months.

As vacancies contracted, landlords gainea stronger position, and provided fewerconcessions. Rent concessions declined5.2 percent in the second quarter, followina 4.0 percent slide in the first one.

Leasing rates rose 2.7 percent,accelerating from the 2.0 percent advancfrom the first quarter. In terms of spacerequirements, tenant demand remainedstrongest in the 5,000 square feet andbelow, accounting for 81.0 percent ofleased properties. Demand for spaceunder 2,500 feet comprised 49.0 percent

of lease agreements. Lease termsremained steady, with 36-month and 60-month leases capturing 56.0 percent of thmarket.

5ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics

e GDP outlook for the third and fourth quarters of 2014 calls for growth rates of 2.8 and 2.9rcent, respectively. With payroll employment growth in the latter half expected to add another 11.5 million net new jobs, the unemployment rate is expected to decline to an average 6.0 perceyear-end, leading to continued improvement in commercial real estate conditions.

%

%

%

%

%

%

%

2 0 1 0 . Q 1

2 0 1 0 . Q 2

2 0 1 0 . Q 3

2 0 1 0 . Q 4

2 0 1 1 . Q 1

2 0 1 1 . Q 2

2 0 1 1 . Q 3

2 0 1 1 . Q 4

2 0 1 2 . Q 1

2 0 1 2 . Q 2

2 0 1 2 . Q 3

2 0 1 2 . Q 4

2 0 1 3 . Q 1

2 0 1 3 . Q 2

2 0 1 3 . Q 3

2 0 1 3 . Q 4

2 0 1 4 . Q 1

2 0 1 4 .

2

REALTORS® Commercial Vacancy Rates

Office Industrial Retail Multifamily Hotel

Source: National Association of Realtors®

-15%

-10%

-5%

0%

5%

10%

15%

20%

2 0

0 8 . Q 4

2 0

0 9 . Q 2

2 0

0 9 . Q 4

2 0

1 0 . Q 2

2 0

1 0 . Q 4

2 0

1 1 . Q 2

2 0

1 1 . Q 4

2 0

1 2 . Q 2

2 0

1 2 . Q 4

2 0

1 3 . Q 2

2 0

1 3 . Q 4

2 0

1 4 . Q 2

g

,Q

y

REALTOR® Commercial Leasing Trends

Leasing Volume Leasing Rates Lease Concessions

Source: National Association of Realtors®



6

AUGUST 2014

2014.Q2 Survey Highlights

64% of commercial REALTORS® closed a sale.Sales volume rose 7% from a year ago.Sales prices increased 3% year-over-year.Cap rates averaged 8.3% during Q2.14Leasing volume advanced 4% from previous quarter.

Leasing rates increased 3% over previous quarter.Concession levels declined 5% on a quarterly basis.Inventory shortage topped the list of currentallenges, followed by a tie between pricing gap and

cal economies.The estimated average transaction stayed level at.4 million in Q2.14


NOTES:1. Vacancy rate data in this report come from a national survey of REALTORS® who identify themselves as commercial

practitioners. The data do not match the historical data which underlie NAR’s Commercial Real Estate Outlook (CREO).

The CREO vacancy data are sourced from Reis, Inc.

2. In July 2014, NAR invited a random sample of 51,276 REALTORS® with an interest in commercial real estate to fill an o

line survey. A total of 438 responses were received, for an overall response rate of 0.9 percent.

%

%

%

%

%

%

%

%

%

%

%Average Leased Space by Size, Quarterly*

Under 2,500 sf

2,500 - 4,999 sf

5,000 - 7,499 sf

7,500 - 9,999 sf

10,000 - 49,999 sf

50,000 - 100,000 sf

Over 100,000 sf

Source: National Association of Realto*Prior to 2010.Q4 "Under 5,000 sf was the lowest category available.

0 10 20 30 40 5

0 - 12 months

12 months

24 months

36 months

48 months

60 + months

60 months

Average lease term during last

transaction (%)



The REALTORS® Commercial Real Estate Quarterly Market Survey asks participants to comment on

current conditions in their markets. Below are a few of the comments about the latest quarter environmen

A little worries that the current apartment sales boom is

cooling off.

Activity is up strongly for small office and warehouse

spaces

Albuquerque and New Mexico has suffered from weak

employment growth and strong reliance on government

but it seems that we are finally starting to recover.

All looking much more positive in 2014 than the previous

6 years and even in the last 2 years - closing deals on far

more regular basis

Banks only loan to the people who don't need them still.

Better in some ways but still slower than it should be.

Big run on industrial leasing.

Business is 100% better than what it was last year.

Buyers and sellers lack confidence because of national

economy in Q1 and Q2.

Cars are selling, so Michigan is ahead of the nation!

Distressed properties and short sales kill us. The response

time on these properties from banks or the third party

approval take forever.

Elimination of capital gains tax would result in more

investment sales, no one sells because they can't find a

suitable 1031 exchange.

FEMA has not grandfathered Flood insurance for

previous existing businesses here on the Coast. They did

Grandfather it for Residential....This will kill the

commercial market on the MS gulf coast.

7

AUGUST 2014


Continued job growth. Slow office absorption. Strong

warehouse market. Retail improving. Multi- family strong

Rents slowly increasing in all sectors except Class C &

distress which are trading at significant discounts to write

off.

Financing is critical and the terms and conditions that

lenders put you through is tough for most borrowers.

Financing is still a challenge for certain product types, mul

family is still the easiest to finance these days.

Flat, no job growth in professional services, high office

vacancy - good retail activity - no warehouse activity.

General improvement in activity, slight increase in prices

and lease rates.

Good inventory is getting harder to find!

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014.Q2 2014.Q1

REALTORS® Most Pressing Challenges

Other

Pricing Gap: Buyers

Sellers

National Economy

Local Economy

Financing

Distress

Inventory



The REALTORS® Commercial Real Estate Quarterly Market Survey Comments—continued.

8

I feel it has improved somewhat over the last few years but

there is still much room needed to grow and honestly say

we are out of recession in the NW suburbs.

I work with smaller properties and financing is not available.

In our small market (less than 50K people in a 40 mile

stretch), the commercial market is still lagging. Population

has not returned to pre-downturn size and many are still

struggling. Residential market is better, but financing is also

a huge concern and has caused 2 of my commercial deals in

the past year to crater.

Increasing demand with constrained inventory.

International buyers dominate the market with buying and

selling.

inventory becoming critically low in most property types in

our region

Investment multi and strip centers are the hot commodity inthe current market.

It has turned around quicker than forecasted.

It is good! Construction is booming and that says it all!

It is heating up--- if we had more inventory it would be a lot

better

Joint community efforts-public and private partnerships has

been a catalyst for growth in the area.

Just waiting for politicians in D.C. to take their foot off the

brake on the economy.

Local economic development in Santa Fe is poor and zoning

is anti-business/anti-growth.

Market activity is brisk indicating future closed transactions

- sales and leases.

AUGUST 2014


Market has stabilized and shows signs of improving.

Miami is emerging at a very fast pace right now all facets RE.

Most of our commercial activity centers on high-end

properties in downtown Houston--and it is a booming

market.

Much stronger and financing is becoming more available

especially for smaller projects. After 5 years something ha

to get better.

No incoming inquires at all. I am cold calling out of stateinvestors and networking to generate any interest. I have

created some interest in an $8.45M project.

Noticing an improvement in activity, buyers still wary of

purchasing.

Office market is stable with very little movement in pricing

Inventory moving slowly compared to last year.

0%

10%

20%

30%

40%

50%

60%

70%

80%

2 0 1 0 . Q 1

2 0 1 0 . Q 2

2 0 1 0 . Q 3

2 0 1 0 . Q 4

2 0 1 1 . Q 1

2 0 1 1 . Q 2

2 0 1 1 . Q 3

2 0 1 1 . Q 4

2 0 1 2 . Q 1

2 0 1 2 . Q 2

2 0 1 2 . Q 3

2 0 1 2 . Q 4

2 0 1 3 . Q 1

2 0 1 3 . Q 2

2 0 1 3 . Q 3

2 0 1 3 . Q 4

2 0 1 4 Q 1

REALTORS® Commercial Transaction

Closing Rate




The REALTORS® Commercial Real Estate Quarterly Market Survey Comments—continued.

9

On the surface some areas appear to be improving slightly,

but buyers are very selective and demanding. Market still a

buyers market in most all areas in Desoto County only) of

Memphis metro area.

Our Commercial Market is good right now with

unemployment below 5% and a $1.7B Fertilizer plant being

constructed and other additions.

Our current market has improved to a moderate level of

market activity. Little or no new construction is taking

place, so inventories are shrinking.

Our local economy is more than 65% government

administration based. Not fully recovered from recession.

Overall southwest Florida activity has been positive with

increased interest from both corporate and residential

users. Florida in general is the focus of increased interest

from the 'Boomer' generation who can now sell in northern

markets and see a savings on taxes in a economic universeof marginal yields.

Purchasers are looking for a good buy with potential of

upswings. Sellers are not connected with the market and its

volatility.

Sales activity is up as investors are trying to get off of the

"side-lines"

San Francisco's landscape is changing dramatically.

Sellers substantially overvalue their property which

discourages some tenants/buyers from seeking a space.

'Wallstreet' has not met 'Mainstreet' in Philadelphia ...

regardless of the barnyard posturing and puffing by owners

and business concerns who benefit from such overreaching

bullish assertions.

Slow moving of local/region economic (trade, education,

manufacturing, tourism, jobs and wages) affecting the

market.

AUGUST 2014


Small businesses continue to close due to lack of business

and new businesses are not replacing them. Some large

manufacturing is steady, food processing is slowing.

Small companies are pinched. Larger companies and ener

companies seem to be doing well.

South Florida demand for class B and A properties

continues to increase.

Suburban retail and southwestern industrial market strong

recovering. Land supplies fewer than past years.

The industrial market is robust. Vacant land for

development is just beginning to show signs of life again.

The industry needs tax credits to "kick start" the industry a

the macro level, especially new construction.

The market has several fluctuations in price and terms all

dependent upon the type of industry indigenous to thetenant or buyer. Less risk taking by both.

The market is fine as long as you have no distressed buyer

and sellers.

Three Casinos pending closing will effect future Business.

Too much inventory in poor locations. These properties

drop prices which drags down the prices in the entire

market.

We are getting more interest in leasing, vacant land and

light manufacturing, warehousing and retail

We continue to struggle with low employment rate, no

business expansion, and difficulty financing investment

properties.

We, in the Bay Area are in an economic bubble. Our marke

is hot and is expected to stay that way for few more years



NATIONAL ASSOCIATION OF REALTORS ®

RESEARCH DIVISION

The Mission of the National Association of REALTORS® Research

Division is to collect and disseminate timely, accurate andcomprehensive real estate data and to conduct economic analysis inorder to inform and engage members, consumers, and policy makersand the media in a professional and accessible manner.

The Research Division monitors and analyzes economic indicators,including gross domestic product, retail sales, industrial production,producer price index, and employment data that impact commercialmarkets over time. Additionally, NAR Research examines howchanges in the economy affect the commercial real estate business,and evaluates regulatory and legislative policy proposals for theirimpact on REALTORS,® their clients and America’s property owners.

The Research Division provides several products coveringcommercial real estate including:

10

500 New Jersey Avenue, NW • Washington, DC 20001 – 2020

800.874.6500 • www.REALTOR.org

AUGUST 2014

CONTACTS

Lawrence Yun, PhD

Sr. Vice President, Chief

Economist

[email protected]

George Ratiu

Director, Quantitative &

Commercial Research

[email protected]

> economistsoutlook.blogs.realtor.org > www.facebook.com/narresearchgroup> twitter.com/#!/NAR_Research

> www.realtor.org/research-and-statistics > www.ccim.com/resources/itq> www.siorprofessionalreport-digital.com

• Commercial Real Estate Outlook • CCIM Quarterly Market Trends

• Commercial Real Estate Lending Survey • SIOR Commercial Real Estate Index

• Commercial Member Profile • Expectations & Market Realities in Real Estate2014 (Deloitte, RERC, NAR)

commercial real estate market survey 2014-08-26

Documents