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AUGUST 2014
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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
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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
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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
ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics
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
Source: National Association of Realto
-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
Source: National Association of Realto
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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®
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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
ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics
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 (%)
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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
ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics
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
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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
ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics
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
Source: National Association of Realto
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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
ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics
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
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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
George Ratiu
Director, Quantitative &
Commercial Research
> 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)