National Association of REALTORS COMMERCIAL REAL ESTATE MARKET TRENDS: Q4.2017

Transcription

1 National Association of REALTORS COMMERCIAL REAL ESTATE MARKET TRENDS: Q4.2017

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 2018 LEADERSHIP TEAM President Elizabeth J. Mendenhall, ABR, ABRM, CIPS, CRB, GRI, epro, LCI, PMN President-Elect John S. Smaby First Vice President Vince E. Malta Treasurer Thomas A. Riley, CCIM, CRB Immediate Past-President Bill E. Brown Vice President Colleen A. Badagliacco, CRB, CRS, epro, GRI, SRES Vice President Kenny Parcell, ABR, BB, CRS Chief Executive Officer Bob Goldberg 3

4 COMMERCIAL REAL ESTATE MARKET TRENDS Q CONTENTS 1 Introduction. 2 Investment Sales Leasing Fundamentals... 4 Methodology

5 COMMERCIAL REAL ESTATE MARKET TRENDS Q Introduction 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 being relatively small, while the bulk of commercial space is concentrated in larger buildings. GEORGE RATIU Managing Director, Housing & Commercial Research gratiu@realtors.org The bifurcation continues along transaction volumes as well, with deals at the higher end $2.5 million and above comprising a large share of investment sales, while transactions at the lower end make up a smaller fraction. 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 intermediated by REALTORS are less widely available. National Association of REALTORS (NAR) Commercial Real Estate Market Trends gathers market information for small cap properties and transactions, mostly valued below $2.5 million. Q Update The fourth quarter of 2017 marked an acceleration in REALTORS market trends. Sales volume advanced at a solid 9.1 percent, as cap rates closed the year 10 basis points higher from The shortage of available inventory remained the principal concern for investors, as a wide pricing gap between buyers and sellers affected over 20 percent of respondents. Prices gained 6.9 percent yearover-year. Leasing activity maintained its growth trajectory as vacancies declined. 5

6 Percent Change, year-over-year 2008.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 INVESTMENT SALES Q Percentage of REALTORS Who Closed a Sale Transaction 30% Sales Volume Sales Prices 20% 75% 10% 0% -10% Q Average Transaction Value $1.5 million -20% -30% -40% -50% Source: National Association of Realtors Q Investment Volume +9.1% Q Investment Prices +6.9% Current market not showing indications of slowing and should remain strong for the next 18 months. South in VA, demand is outstripping supply. Land prices up. In Ohio, Michigan, key cities like Columbus, Grand Rapids, sections of Detroit and Traverse City, there is much activity. Burgeoning rural areas are ones that have new jobs and housing stock that is ready to go. Trend will be rental with the new tax code. Far-flung suburban Chicago is simply not a place where anything major seems to be happening, or planned to happen, so our market just plods along while much of the rest of the country, including urban Chicago has had some very strong years. Industrial is still very strong. Some Bitcoin mining tenants (new to market) and retail is still going well in strip centers. Looks to be continued growth as the population is projected to grow from our current 2.3 Million in our MSA to a 4.0 million by Market in this rural town is very distressed due to septic issues and the construction of large corporation businesses like Dollar General, Walmart distressing the small business even more. San Antonio is a good, solid market. Not too much growth no boom and bust. 6

7 COMMERCIAL REAL ESTATE MARKET TRENDS Q INVESTMENT SALES 2017 was down across the board in every food group with exception of larger REIT transactions. Specialty transactions such as self-storage are transitioning to new construction, which I expect will overtake existing general industrial user buildings in Current market is strong, advancing year over year at a healthy pace, but quarterly we saw a slight decrease in activity mostly due to seasonal factors. Some growth areas such as Springdale, have neighborhoods poised for rapid growth and price increases, but, as of yet, the value increases are mostly anticipatory as infrastructure is built. We anticipate increasing prices in these areas, but there is not much evidence to say specifically how much of the anticipated gains will be realized and how quickly. Multifamily is very strong. Lots of buyers, local and from outside of market (mostly). Not enough sellers. Industrial is fairly strong, too. Office and retail OK but not overly strong (other than new retail construction which is strong). The market is energized, but the gap between what the buyer wants and can afford and the seller is upside down. We are seeing a surge in activity and interest since late People are excited about the new tax reform, although in actuality, it does nothing to address the key problems with the tax code as it relates to real estate investment. Buyers are looking for "deals". There are "no deals," just fair deals today -- but I'm concerned of another "bust" not as bad as before, but "this engine keeps on running". New Industrial warehouses are trying to lease at $5.50- $6.00/sf NNN; cost of construction is high. Northwest Arkansas Market 20.0% Sale Prices (YoY % Chg) Real Capital Analytics CRE Markets REALTOR CRE Markets REALTORS Q Prices Office Class A($/SF) $149 Office Class BC ($/SF) $106 Industrial Class A ($/SF) $84 Industrial Class BC ($/SF) $65 Retail Class A ($/SF) $141 Retail Class BC ($/SF) $105 Apartment Class A ($/Unit) $55,730 Apartment Class BC ($/Unit) $50,685 Source: National Association of REALTORS 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% Sources: NAR, Real Capital Analytics 7

8 2010.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 COMMERCIAL REAL ESTATE MARKET TRENDS Q INVESTMENT SALES 12.0% 11.0% 10.0% 9.0% REALTORS Commercial Capitalization Rates Office Industrial Retail Multifamily Hotel Q REALTORS with International Transactions 13% 8.0% 7.0% 6.0% 5.0% Q Average International Transaction Value $1.2 million Source: National Association of Realtors 2017 Cap Rate in REALTORS Markets 7.2% REALTORS Q Cap Rates Office Class A 6.7 % Office Class BC 7.5 % Industrial Class A 6.6 % Industrial Class BC 7.6 % Retail Class A 6.5 % Retail Class BC 7.6 % Apartment Class A 6.0 % Apartment Class BC 6.9 % Hotel Class A 6.9 % Hotel Class BC 7.5 % Source: National Association of REALTORS 8

9 COMMERCIAL REAL ESTATE MARKET TRENDS Q INVESTMENT SALES Appraisers Familiarity with Market Appraisers Familiarity with Property Type Always 27% Always 34% Sometimes 63% Sometimes 59% Rarely 9% Rarely 7% Never 1% Never 1% Regarding appraisers, our core local appraisers are solid and I share data with them. Appraisers from more distant locations struggle with understanding our market. Regarding appraisers, appraisers should be local and know the local market. They should NOT be allowed to work in a market they are not familiar with. Q Market Conditions 9

10 % Change, Quarter-over-quarter 2009.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 COMMERCIAL REAL ESTATE MARKET TRENDS Q LEASING FUNDAMENTALS Q Percentage of REALTORS Who Closed a Lease Transaction 15% New Construction Leasing Volume 65% 10% 5% 0% -5% -10% Q Leasing Volume +5.3% Q Leasing Rates +3.3% -15% -20% -25% -30% Source: National Association of Realtors 20% 10% 0% -10% -20% -30% -40% REALTOR Commercial Leasing Trends Leasing Volume Leasing Rates REALTORS Q Rents Office $31 / Sq.Ft. Industrial $23 / Sq.Ft. Retail $37 / Sq.Ft. Multifamily $1,106 / Unit Average lease term during last transaction (%) 60 + months 60 months 48 months 36 months 24 months 12 months 0-11 months -50% Source: National Association of Realtors

11 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 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 COMMERCIAL REAL ESTATE MARKET TRENDS Q LEASING FUNDAMENTALS 30.0% 25.0% REALTORS Commercial Vacancy Rates Office Industrial Retail Multifamily Hotel REALTORS Q Vacancy Rates Office 12.0 % Industrial 7.8 % Retail 11.4 % Multifamily 5.0 % Hotel 13.7 % 20.0% 15.0% 10.0% 5.0% It seems that people are ready to spend money on their businesses. We are seeing a lot of activity in the leasing market. Retail is going through a period of consolidation, even in major MSAs. Apartments show continued vigor and still not good product for homeowners and investors to buy. 0.0% Tenants are leaving Connecticut for Boston and other locations. Gov's got to go! Source: National Association of Realtors 100% Average Leased Space by Size, Quarterly* 90% 80% 70% 60% 50% 40% 30% 20% 10% Over 100,000 sf 50, ,000 sf 10,000-49,999 sf 7,500-9,999 sf 5,000-7,499 sf 2,500-4,999 sf Under 2,500 sf 0% *Prior to 2010.Q4 "Under 5,000 sf was the lowest category available. Source: National Association of Realtors 11

12 2008.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 LEASING FUNDAMENTALS REALTORS Most Pressing Challenges Direction of Business Opportunity (QoQ) 100% 8% 90% 80% 70% 46% 42% Inventory Shortage Pricing Gap: Buyers vs Sellers 6% 4% 2% 60% Local Economy 0% 50% 40% 21% 23% Financing Other -2% -4% 30% 20% 10% 0% 9% 13% 12% 8% 10% 10% 1% 3% 2017.Q Q3 National Economy Distressed Properties -6% -8% -10% -12% Source: National Association of Realtors Q Market Opportunities 12

13 COMMERCIAL REAL ESTATE MARKET TRENDS Q Methodology 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 leasing transactions, along with information on current economic challenges and future expectations. In January 2018, NAR invited a random sample of 63,269 REALTORS with an interest in commercial real estate to complete an on-line survey. A total of 933 complete responses were received, for an overall response rate of 1.5 percent. The main measure of central tendency employed in the analysis is the mean. 13

14 The National Association of REALTORS, The Voice for Real Estate, is America s largest trade association, representing 1.3 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 GROUP The Mission of the National Association of REALTORS Research Group 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 Research, visit NATIONAL ASSOCIATION OF REALTORS RESEARCH GROUP 500 New Jersey Avenue, NW Washington, DC

15 COMMERCIAL REAL ESTATE MARKET TRENDS: Q4.2017