National Association of REALTORS COMMERCIAL REAL ESTATE MARKET TRENDS: Q4.2015

Transcription

1 National Association of REALTORS COMMERCIAL REAL ESTATE MARKET TRENDS: Q4.2015

2 Commercial Real Estate Market Trends: Q Download: NATIONAL ASSOCIATION OF REALTORS All Rights Reserved. Reproduction, reprinting or retransmission in any form is prohibited without written permission. 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 purposes only. 2

3 COMMERCIAL REAL ESTATE MARKET TRENDS Q NATIONAL ASSOCIATION OF REALTORS 2016 OFFICERS President Tom Salomone President-Elect Bill Brown First Vice President Elizabeth Mendenhall, GRI, ABR, ABRM, CIPS, CRB, PMN Treasurer Michael McGrew, CRB, CRS Immediate Past-President Chris Polychron, CIPS, CRS, GRI Vice President Michael Labout, GRI Vice President Sherri Meadows, GRI, CIPS, CRB, PMN Chief Executive Officer Dale Stinton, CAE, CPA, CMA, RCE 3

4 COMMERCIAL REAL ESTATE MARKET TRENDS Q CONTENTS 1 Introduction 2 Survey Highlights Investment Sales Leasing Fundamentals.. 5 Comments

5 2008.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 COMMERCIAL REAL ESTATE MARKET TRENDS Q Introduction The REALTORS Commercial Real Estate Market Trends measures quarterly activity in the commercial real estate markets, as reported in a national survey. 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. Commercial space is heavily concentrated in large buildings, but large buildings are a relatively small number of the overall stock of commercial buildings. In terms of inventory, commercial real estate markets are bifurcated, with the majority of buildings (81 percent) being relatively small (SCRE), while the bulk of commercial space (71 percent) is concentrated in larger buildings (LCRE). The bifurcation continues along transaction volumes as well, with deals at the higher end $2.5 million and above comprising a large GEORGE RATIU Director, Quantitative & Commercial Research gratiu@realtors.org share of investment sales, while transactions at the lower end make up a smaller piece of the pie. Data are readily available for transactions in excess of $2.5 million from several sources, including Real Capital Analytics (RCA). However, in general, data for smaller transactions many of which are handled by REALTORS are less widely available. NAR s Commercial Real Estate Market Trends gathers market information for SCRE properties and transactions, mostly valued below $2.5 million. Sales Volume (YoY % Chg) Sales Prices (YoY % Chg) 200% Real Capital Analytics CRE Markets REALTOR CRE Markets 20.0% Real Capital Analytics CRE Markets REALTOR CRE Markets 150% 10.0% 100% 0.0% 50% -10.0% 0% -20.0% -50% -30.0% -100% -40.0% Sources: NAR, Real Capital Analytics 5

6 COMMERCIAL REAL ESTATE MARKET TRENDS Q Survey Highlights Sixty-six percent of commercial REALTORS closed a sale. Sales volume rose 7.4 percent from a year ago. Sales prices increased 4.1 percent yearover-year. Cap rates averaged 7.8 percent. The average estimated transaction value slid from $1.9 million in Q to $1.6 million in Q Sixty-three percent of members completed a lease transaction Leasing volume advanced 3.0 percent from previous quarter. Leasing rates increased 2.5 percent over the previous quarter. Concession levels declined 3.1 percent on a quarterly basis. Inventory shortage topped the list of current challenges, followed by buyer-seller pricing gap and local economic conditions. REALTORS Most Pressing Challenges Completed sales transaction (%) 100% 90% 80% 70% 60% Other Pricing Gap: Buyers vs Sellers National Economy Yes No 50% Local Economy 40% 30% Financing Completed lease transaction (%) 20% 10% 0% 2015.Q Q3 Distress Inventory Yes No NOTE: 1. In January 2016, NAR invited a random sample of 49,203 REALTORS with an interest in commercial real estate to complete an on-line survey. A total of 444 complete responses were received, for an overall response rate of 0.9 percent. 6

7 2008.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Thousands Percent Change, year-over-year 2008.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 COMMERCIAL REAL ESTATE MARKET TRENDS Q Investment Sales While economic activity moderated during the fourth quarter of 2015, commercial real estate investments picked up speed. More REALTORS reported closing deals compared with the prior quarter 66 percent in the fourth quarter versus 63 percent in the third. Concurrently, sales volume rose 7.4 percent from the fourth quarter of 2014, accelerating from the third quarter s 7.0 percent. With the shortage of available inventory remaining the number one concern for NAR members, price growth continued upward. Commercial properties traded at average prices 4.1 percent higher compared with the same period in The average transaction price slid from $1.9 million in the third quarter 2015 to $1.6 million in the fourth quarter A perceived pricing gap between sellers and buyers remained the second highest ranked concern. 30% 20% 10% 0% -10% -20% -30% -40% -50% $2,500 $2,000 $1,500 $1,000 $500 Sales Volume Sales Prices Estimated Avg. Sales Transaction Value $0 REALTORS 2015.Q4 Prices Office Class A($/SF) $129 Office Class BC ($/SF) $98 Industrial Class A ($/SF) $85 Industrial Class BC ($/SF) $63 Retail Class A ($/SF) $124 Retail Class BC ($/SF) $91 Apartment Class A ($/Unit) $42,280 Apartment Class BC ($/Unit) $31,505 Source: NAR 80% 70% 60% 50% 40% 30% 20% 10% 0% REALTORS Commercial Transaction Closing Rate Source: National Association of Realtors 7

8 COMMERCIAL REAL ESTATE MARKET TRENDS Q % 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% REALTORS Commercial Capitalization Rates Office Industrial Retail Multifamily Hotel Investment Sales - continued Average capitalization rates compressed slightly to an average 7.8 percent across all property types, a 13 basis point decline on a yearly basis. Apartments posted the lowest cap rate, at 7.2 percent, followed by industrial properties with average cap rates at 7.4 percent. Office and retail spaces posted cap rates of 8.2 percent and 7.8 percent, respectively. Hotel transactions reported the highest comparative cap rates 8.6 percent. With yields declining slightly, the spread between cap rates in REALTOR markets and 10-year Treasury notes narrowed in the fourth quarter, reaching 560 basis points. Source: National Association of Realtors 2015.Q4 Cap Rates Office 8.2% Industrial 7.4% Retail 7.8% Multifamily 7.2% Hotel 8.6% The direction of commercial business opportunities during the fourth quarter 2015 rose three percent, on par with the third quarter s figure, but slightly lower than the second quarter s six percent. Members indicated that the following areas presented the greatest opportunities: 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% Direction of Business Opportunity (QoQ) Source: National Association of Realtors New Development/Construction Industrial Office Land Retail Regional/Local Growth Apartments/Multifamily Capital Availability/Interest Rates Redevelopment/Repositioning International Investors Distressed Properties 8

9 2008.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 % Change, Quarter-over-quarter COMMERCIAL REAL ESTATE MARKET TRENDS Q Leasing Fundamentals Commercial fundamentals continued improving during the fourth quarter Leasing volume during the quarter rose 3.0 percent compared with the third quarter Leasing rates advanced at a steady pace, rising 2.5 percent in the fourth quarter, even with the prior quarter. 10% 5% 0% -5% -10% New Construction Leasing Volume NAR members average gross lease volume for the quarter was $743,412, 31 percent higher than the previous period. New construction mirrored the broader economic slowdown, posting a 3.7 percent gain from the third quarter of this year. In comparison, the second and third quarter s construction gains were 5.7 percent and 6.6 percent, respectively. Tenant demand remained strongest in the 5,000 square feet and below segment, accounting for 75 percent of leased properties. However, demand for space in the 10,000 49,999 square feet almost doubled from a year ago, to 10 percent of total. Lease terms remained steady, with 36-month and 60-month leases capturing 59 percent of the market. -15% -20% -25% -30% Source: National Association of Realtors Average lease term during last transaction (%) 60 + months 60 months 48 months 36 months 24 months 12 months 0-11 months 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 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 sf Over 100,000 sf *Prior to 2010.Q4 "Under 5,000 sf was the lowest category available. Source: National Association of Realtors 9

10 COMMERCIAL REAL ESTATE MARKET TRENDS Q % 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% REALTORS Commercial Vacancy Rates Office Industrial Retail Multifamily Hotel Leasing Fundamentals - continued Vacancy rates mirrored the regional and product variations in REALTORS markets, ranging from a low of 6.2 percent for apartments to a high of 15.7 percent for hotel properties. Office vacancies declined 62 basis points to 14.3 percent compared with a year ago. Industrial availability witnessed a yearly decrease of 17 basis points to 11.4 percent. Retail vacancies rose 40 basis points on a yearly basis, to 12.9 percent. Lease concessions declined 3.1 percent. Tenant improvement (TI) allowances averaged $47 per square foot per year nationally. Source: National Association of Realtors REALTORS 2015.Q4 Vacancy Rates Office 14.3% Industrial 11.4% Retail 12.9% Multifamily 6.2% Hotel 15.7% 10

11 COMMERCIAL REAL ESTATE MARKET TRENDS Q Comments The REALTORS Commercial Real Estate Quarterly Market Survey asks participants to comment on current conditions in their markets. Below are selected remarks about the latest market environment. 100% of my real estate is in land. Based on rather intense research it is my opinion that land prices have been flat since Volume of sales was the same from , at which we have seen a steady increase. Another negative is that total sales in dollars has not grown since 2005, we are currently 70% of 2005's sales in dollars. Banks beginning to participate a bit more in this commercial market, but still minimal. When using bank financing appraisals coming in below actual sale prices. Best year on record for our market area, all sectors broke previous highs in leasing, sales, and loans. Concerned about an increase in interest rates and long term capital gains tax rate up to 28% from 15% last year. Constrained supply in a tight geographic area where transportation is the key factor Evergreen is a tough retail and office market. There is too much inventory so far in both. The proximity to Denver has many locals shopping and working in Denver. There is not a lot of Industrial. The apartments are full and quite expensive. Not a lot of room to build anything new. I don't see much decrease but mostly flat and steady growth. Rents may not go up much this year since things seem to be slowing slightly. In general we have a good market but low inventory for special use clients. We are seeing more clients coming from out of state or countries. Investors are hesitant but multifamily remains strong. Our area is underbuilt and vacancy in as near 0 as it can be. It has become a landlord s market. I fear what may occur in the economy in 1 to 2 years but positioning should anything negative occur. Also, looking for reasonably priced property to acquire. Many large sales of commercial buildings to local owners and partnerships $100 million Sale of prominent hotels to outside interests. Market appears mostly steady for now. Uncertainty in national economy as well as government regulations are playing a negative role in the market. Need tax decreases (state and national) on business to spur new business growth. The increase in capital gains taxes and health related taxes are huge business disincentives. Lenders are still staying short (5 to 7 year loans). Who can afford to build a major project without long term loans? Also who wants to venture investment dollars with the higher taxes enacted since 2008? The rewards do not match the risks for a lot of investors. Northern NY is in an economic stagnation with little prospect for improvement on the horizon. Our local commercial market consists mostly of smaller infill type of locations under 10,000 sq. ft. and dominated by locations under 3000 sq. ft. 11

12 COMMERCIAL REAL ESTATE MARKET TRENDS Q Comments continued Owners are too aggressive about sale price and lease rates. This appears to be heavily influenced by the wide perception by branded big corp. news and PR activity suggesting watershed growth in the economy when in fact functional growth for the general population has not made its way into the pockets of the rank and file to lift the opportunity for main street investors and entrepreneurs. Very low inventory for industrial, 5,000-10,000 SF We were hit very hard by the economic downturn. Prices are still going up now. Jobs are the number one impediment to a fully healthy market, but several companies are beginning to look to our region for expansion/startup. The future is looking up. People with higher investment are thinking twice before getting into it, due to unknown economic effect for lower oil price. Retail market appears to be growing in strength and the multi-family market remains tight. Since the big Lenders are interested to hold commercial mortgages again, the sales market has increased and prices have increased. Strong Seller's market for apartment investments. Multiple Offers on quality offerings. Bidders paying 5% to 10% over Asking Price. Supply is constraining deals. Investors are continuing to support lower cap rates in all asset classes. The impact of new handling of transparency of on balance sheet lease agreements has major tenants concerned. The market in all sectors is ACTIVE, but closings are still a challenge. Mainly due to increased bank regulations and greater scrutiny by the BUYER. The market is strong, with good economic indicators. BUT there is no inventory. Major shortage! 12

13 The National Association of REALTORS, The Voice for Real Estate, is America s largest trade association, representing over 1 million members, including NAR s institutes, societies and councils, involved in all aspects of the real estate industry. NAR membership includes brokers, salespeople, property managers, appraisers, counselors and others engaged in both residential and commercial real estate. The term REALTOR is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS and subscribes to its strict Code of Ethics. Working for America's property owners, the National Association provides a facility for professional development, research and exchange of information among its members and to the public and government for the purpose of preserving the free enterprise system and the right to own real property. NATIONAL ASSOCIATION OF REALTORS RESEARCH DIVISION The Mission of the National Association of REALTORS Research Division is to collect and disseminate timely, accurate and comprehensive real estate data and to conduct economic analysis in order to inform and engage members, consumers, and policy makers and the media in a professional and accessible manner. To find out about other products from NAR s Research Division, visit NATIONAL ASSOCIATION OF REALTORS RESEARCH DIVISION 500 New Jersey Avenue, NW Washington, DC

14 COMMERCIAL REAL ESTATE MARKET TRENDS: Q New Jersey Avenue, NW Washington, DC