2014 q3 commercial real estate market survey

8/10/2019 2014 Q3 Commercial Real Estate Market Survey

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OCTOBER 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



OCTOBER 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 third quarterregistered a 3.5 percent annual rate of growth, a figure which exceededthe consensus forecasts. Economic activity was driven by an upbeatnet trade and surprising positive government spending.

In line with the economic upswing, commercial REALTORS® reportedmarket gains in the third quarter 2014. REALTORS® rated the directionof commercial business opportunities 3.0 percent higher in the thirdquarter 2014.

Sales of commercial properties rose 7.4 percent on a year-over-yearbasis, indicating accelerated investment activity. Price gains alsoaccelerated, with properties trading at average prices 4.8 percenthigher 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

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

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Direction of Business Opportunity

Source: National Association of Realto-50%

-40%

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0%

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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



OCTOBER 2014

Cap rate compression moderated, with a13 basis point decline year-over-year.

Average cap rates declined from 8.3percent in the second quarter 2013 to 8.2percent in the third quarter of this year.Hotels posted the lowest average caprates, at 6.8 percent, closely followed byapartments, at 7.1 percent. Office and

retail spaces posted cap rates of 10.5percent and 8.1 percent, respectively.Industrial properties recorded capitalizationrates of 8.5 percent.

The average transaction price remainedlevel for the third consecutive quarter, atthe $1.4 million mark. The shortage ofavailable inventory retained its number one

spot, as members reported not findingenough suitable properties. Pricingdisagreements between sellers and buyerswas the second highest ranked concern,followed by local economic conditions.Financing concerns dropped to fourthplace during the third quarter.

Leasing fundamentals continued on a

recovery path. Demand for spaceincreased, with leasing volume rising 2.7percent over the second quarter. Supplyconditions advanced, as new constructiongained 4.1 percent in the third quarter2014, on the heels of a 4.3 percentincrease last quarter.

4

2014.Q3 Cap Rates

Office 10.5%

Industrial 8.5%

Retail 8.1%

Multifamily 7.1%

Hotel 6.8%

2014.Q3 Vacancy Rate

Office 15

Industrial 9

Retail 13

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

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REALTORS® Commercial Capitalization Rates

Office Industrial Retail Multifamily Hote

Source: National Association of Realto

-30%

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-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




OCTOBER 2014

Vacancy rates declined for most propertytypes. Apartments experienced availabilitincreases. Office vacancies declined 90basis points, to 15.7 percent, whileindustrial availability declined 331 basispoints, to 9.9 percent. Multifamily vacancreached 6.1 percent, an 11 basis pointadvance. Retail availability decreased 81

basis points to 13.8 percent. REALTORSexpect inventory availability to remaindecline 1.2 percent over the next 12months. As vacancies contracted,landlords gained a stronger position, andprovided fewer concessions. Rentconcessions declined 3.4 percent in thethird quarter, following a 5.2 percent slidein the first one.

Leasing rates rose 0.5 percent, slowingfrom the 2.7 percent advance in thesecond quarter. In terms of spacerequirements, tenant demand remainedstrongest in the 5,000 square feet andbelow, accounting for 74.0 percent ofleased properties. Demand for spaceunder 2,500 feet comprised 39.0 percentof lease agreements, a marked decline

from the second quarter, when itcomprised 49.0 percent of leases. Leaseterms remained steady, with 36-month an60-month leases capturing 60.0 percent othe market.

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

e GDP outlook for the fourth quarter of 2014 and first quarter 2015 calls for growth rates of 2.8d 2.8 percent, respectively. Commercial real estate is poised to close the year on an upbeatte.

-15%

-10%

-5%

0%

5%

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15%

20%

g

,Q

y

REALTOR® Commercial Leasing Trends

Leasing Volume Leasing Rates Lease Concessions

Source: National Association of Realtors®

%

%

%

%

%

%

%

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2 0 1 4 .

3

REALTORS® Commercial Vacancy Rates

Office Industrial Retail Multifamily Hotel

Source: National Association of Realtors®



6

OCTOBER 2014

2014.Q3 Survey Highlights

60% of commercial REALTORS® closed a sale.Sales volume rose 7% from a year ago.Sales prices increased 5% year-over-year.Cap rates averaged 8.2% during Q3.14Leasing volume advanced 3% from previous quarter.

Leasing rates increased 1% over previous quarter.Concession levels declined 3% on a quarterly basis.Inventory shortage topped the list of currentallenges, followed by buyer-seller pricing gap and

cal economies.The estimated average transaction stayed level at.4 million in Q3.14


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 October 2014, NAR invited a random sample of 48,618 REALTORS® with an interest in commercial real estate to fill

an on-line survey. A total of 525 complete responses were received, for an overall response rate of 1.1 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 s

50,000 - 100,000

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

Appraisal values continue to lag behind market

movement and impact financing

Big problem is getting small business owners to find the

time to muddle thru the mountain of obstacles to acquire

space. Banks, appraisers, titles companies each have a

professional in the transaction whose purpose is to find a

problem in the transaction.

Conditions are very good for both sellers, buyers and

developers. Rents are rising, cost of debt is very low. We

expect increasing transaction volume in 2015 and 2016.

Current CRE market in St. Johns County market is still

unstable.

Current struggle between new taxes, rising property tax,

overzealous building requirements and inspections and

business practices becoming larger. […] Property taxes

on rise while values stay low, disparity between tax valueand real worth becoming larger

Economy is holding down small business. National

tenants are expanding into markets while local

businesses are contracting.

Fundamentals are improved, but buyers are slow due to

price increases and lending delays

Glut of office space, buyers and tenants are on hold with

national economy and elections

Harder to negotiate repair between buyer's and seller's.

More involved with clearing title than ever before....

Houston is a GREAT commercial real estate market--as it

has been for most of my life.

I believe the market is having a constant uptick since the

beginning of 2014. Financing is still difficult.

7

OCTOBER 2014


I feel the market in the Chicago Suburbs is still struggling

and think retail will not rebound out in the NW Suburbs un

2016. I do see some movement on Industrial and office.

I have been working on two development projects that ha

taken most my time the 6 months, one in TN and one in

Michigan.

I see a lot of vacant commercial properties for lease. I hav

not done a commercial transaction in a while but I do keep

in touch with what is going on.

If we can get conservative control of government back, rea

estate will explode, after all the upside down inventory is

out of the way.

Inventory for Industrial buildings which is my focus is at th

lowest in over 10 years. There are more buyers than

available buildings. Banks for owner occupants are

becoming more and more aggressive.

0%

10%

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30%

40%

50%

60%

70%

80%

90%

100%

2014.Q3 2014.Q2

REALTORS® Most Pressing Challenges

Other

Pricing Gap: Buye

vs Sellers

National Econom

Local Economy

Financing

Distress

Inventory



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

8

Investors holding their money and not looking at real estate

as an alternative investment.

It is steadily improving and apartment sales are improving

with increase in value.

Lack of inventory and not a lot of new construction is

causing increase in prices in sales and leasing. More new

construction is needed and more financing programs

outside of SBA for investor non owner occupied commercial

investment property.

Local greater Nashville area is very busy in all sectors. See

this to continue, barring disaster, for the next 24 months.

Locally we are seeing a surge in apartment construction

especially within conversion of existing buildings - 4 new

apartment building underway as well as three new towers

downtown with mixed use components.

Many investors and retailers do not understand localdemographics as they should include consumers which

include border crossers from Mexicali, Mexico.

Market is showing signs of improvement with the local

economy and unemployment improving more companies

are beginning to expand and absorb space.

Market seems to have slowed considerably this quarter.

Financing is still very difficult.

Metro Atlanta outside the in-town markets is slow, with the#1 culprit being lack of permanent job creation and

nervousness about economy in general.

Mid-term Elections (State & Federal), US Debt, Obamacare

unknowns, Federal Government Lack of Economic

Leadership, and the Condition of the World Economies are

creating doubt and hesitation for investors in real property.

Nevada Ballot Initiative 3, a margins tax, keeping many

businesses on the sidelines.

OCTOBER 2014


My market is Greenwood and Laurens, SC. Greenwood is

building now. They just finished building a new Publix andanother Walmart is going in. Laurens has nothing moving

in the commercial area right now.

My market is in a tourist based area where much medical

and growth is occurring due to the fact that we are home

many retirees. Family business sales of all types occur. W

do not have a glut of apartment houses for sale but do ha

new construction on several complexes in the area. Resor

sales are behind right now because of financing and due to

the fact that there are not many single owner Buyers out

there that can justify $5 to $15 million dollar properties. Iseems that the resorts are being bought out by the major

resort "chains" that have the clout to purchase them.

National and local economy killing us.

Need more 5,000 to 20,000SF warehouse space with smal

office.

Need to eliminate the sales tax on commercial leases in

Florida.

0%

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REALTORS® Commercial Transaction

Closing Rate




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

9

Old inventory, lack of industrial space & new construction.

Our current market is still suffering from lack of good paying

jobs on the ground. Tenants are "cautiously optimistic" but

not willing to go into medium or long-term leases. Land

sales for commercial building have picked up but the buyers

are still trying to negotiate down on the prices. They are

hesitant as they still do not feel confident this "recovery" is

going to last.

Our market is very different than most. This is a

retirement/resort community.

Our rural local economy is still very slow. Financing also

continues to be an issue. Most of my sales are cash.

Leasing activity is very slow in my community compared to

the leasing activity I do in Denver & Boulder.

Pent up demand has brought developers and investors to

the table finally. The economic boom coming thru La. now

will have a lasting effect.

Premium quality land continues to see steady pricing; less

quality land has noted 10-15-20% decreases from a year

ago. There is still demand for land - investors are looking to

grab land as it continues dropping in price. Biggest market

challenges, then, are lack of inventory, educating sellers in

regard to market conditions as many sat on the fence to

determine when to jump in at the right time & have now

missed it.

Same as everywhere: lack of product to lease, escalatingsale prices. Also, lack of good industrial land vs. Columbus

and Indianapolis.

Sellers have no where to go with their money on sale. Land

development issues will create problems for housing.

Interest rate increases will further exacerbate the problem.

Health care costs will make business growth difficult.

Slow down now and lack of parking space in building my

client required

OCTOBER 2014


Small mid size market that is east of the primary market &

basically dependent on local market with some national an

regional activity.

Starts to pick up and then withdraws. I think the stock

market scares tenants.

Still "slow". No appreciable increase year-to-year.

The Atlanta Market is improving daily. We are now seeing

new quality jobs though it is nowhere near the velocity of

years ago. We are bullish on the entire market as brokers

and the development community seems to agree.

The Naples industrial market is 4% vacant but there is no

new construction until lease rates rise enough to justify th

investment.

The rope-a-dope effect of a soft national economy and

overvalued (sale and lease) properties leaves new

entrepreneurs with valuable contributions on the sidelines

There is an abundance of ambitious buyers and potential

tenants but unfortunately most are not qualified to buy or

lease. Landlords are exercising caution.

There is high end new construction in the area and will

impact all commercial sales and leasing.

There is significant office vacancy coming on the market in

the main office corridor which will have a trickle down affe

on neighboring office submarkets. However, Industrialcontinues to be a healthy segment.

There is still a feeling of fear to invest or expand with all th

uncertainties in Washington.

Very active quarter. Several potential sales but seller's

selling prices are above appraised values.

Very little inventory under 2500 SF for office. Big demand

for office/warehouse under 10,000 SF



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

OCTOBER 2014

CONTACT

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)

2014 q3 commercial real estate market survey

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