National Association of REALTORS : 2018.Q4
Commercial Real Estate Outlook: 2018.Q4 Download: www.nar.realtor/reports/commercial-real-estate-outlook 2018 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.
NATIONAL ASSOCIATION OF REALTORS 2019 LEADERSHIP TEAM JOHN SMABY, CRB, GRI President VINCE MALTA President-Elect CHARLIE OPPLER First Vice President JOHN FLOR, ABR, CRS, GRI, EPRO Treasurer ELIZABETH MENDENHALL, ABR, ABRM, CIPS, CRB, GRI, PMN, EPRO 2018 President BRIAN COPELAND, CIPS, CRS, GRI, EPRO Vice President of Association Affairs TRACY KASPER, CRS, GRI, SFR Vice President of Advocacy BOB GOLDBERG Chief Executive Officer
CONTENTS 1 Economic Overview 2 Commercial Real Estate Investments.. 3 Commercial Real Estate Fundamentals 4 Outlook... 5 8 12 15
2006-Q1 2006-Q4 2007-Q3 2008-Q2 2009-Q1 2009-Q4 2010-Q3 2011-Q2 2012-Q1 2012-Q4 2013-Q3 2014-Q2 2015-Q1 2015-Q4 2016-Q3 2017-Q2 2018-Q1 2012-Q1 2012-Q3 2013-Q1 2013-Q3 2014-Q1 2014-Q3 2015-Q1 2015-Q3 2016-Q1 2016-Q3 2017-Q1 2017-Q3 2018-Q1 2018-Q3 2017 Gross Domestic Product The economy expanded at a stronger pace of 3.5 percent in 2018 Q3 (advance estimate). The economy has been growing more strongly in 2018 compared to 2017, with growth averaging 3.3 percent to date, compared to 2.2 percent in 2017. The third quarter growth was fueled by private consumer and government spending, as business investment spending slowed and exports contracted. 6 5 4 3 2 1 0-1 -2 Exhibit 1.1: Real GDP (% Chg Annual Rate) Source: BEA Private consumption spending which accounts for 69 percent of GDP expanded at a stronger pace of 4.0 percent in 2018 Q3, the strongest since pace since 2015. Spending rose for all types of consumer goods, except for Other Durable Goods (excluding motor vehicles, furniture, and household equipment). The Conference Board s Consumer Confidence Index continues to show strong consumer confidence, with the index at 137.9 in October 2018, up from one year ago (126.2). On the other hand, private fixed investment spending contracted by 0.3 percent as non-residential investment spending rose a meek 0.8 percent and residential investment spending fell 4.0 percent. GEORGE RATIU Director, Housing & Commercial Research gratiu@realtors.org GAY CORORATON Research Economist scororaton@realtors.org Investment spending was dragged down by the 5.1 percent contraction in investment for structures (after three quarters of expansion) and the 6.8 percent contraction in investments for transportation equipment (after four quarters of growth). The strongest expansions were in industrial equipment, at 12.5 percent, and intellectual property products, at 8.7 percent. Private residential investment contracted 4.0 percent in 2018.Q3. The number of building starts another indicator of residential investment declined slightly to a seasonally-adjusted annual rate of 1.20 million units in September 2018 after peaking at 1.33 million in May 2018. Labor, land, financing, and raw material costs are cited by home builders as the main headwinds facing residential construction. Exhibit 1.2: Real Consumer Spending & Business Investments (% Chg Annual Rate) 40.0 20.0 0.0-20.0-40.0 Consumer Spending Non-residential Private Fixed Investments Residential Private Fixed Investments Source: BEA, SAAR, Bil.Chn.2009$ 5
Q1/2006 Q4/2006 Q3/2007 Q2/2008 Q1/2009 Q4/2009 Q3/2010 Q2/2011 Q1/2012 Q4/2012 Q3/2013 Q2/2014 Q1/2015 Q4/2015 Q3/2016 Q2/2017 Q1/2018 2006-Dec 2007-Jul 2008-Feb 2008-Sep 2009-Apr 2009-Nov 2010-Jun 2011-Jan 2011-Aug 2012-Mar 2012-Oct 2013-May 2013-Dec 2014-Jul 2015-Feb 2015-Sep 2016-Apr 2016-Nov 2017-Jun 2018-Jan 2018-Aug 2006-Q1 2006-Q4 2007-Q3 2008-Q2 2009-Q1 2009-Q4 2010-Q3 2011-Q2 2012-Q1 2012-Q4 2013-Q3 2014-Q2 2015-Q1 2015-Q4 2016-Q3 2017-Q2 2018-Q1 Exports contracted by 3.5 percent while imports rose by 9.1 percent, creating a negative contribution to growth. The decrease in exports was, in part, due to a stronger dollar that rose in value against the currencies of the U.S. s trading partners by five percent year-over-year in 2018.Q3. 40 20 0-20 -40 Federal and state/local consumption and investment spending rose by 3.3 percent, the fourth consecutive quarter of expansion since 2017.Q4. Federal spending rose 3.3 percent while state and local spending increased 3.2 percent. Government spending has been growing consistently since 2017.Q4. 15.0 10.0 5.0 0.0-5.0-10.0 Exhibit 1.3: Real Exports & Imports (% Chg Annual Rate) Exports Imports Source: BEA, SAAR, Bil.Chn.2009$ Exhibit 1.4: Real Government Spending (% Chg Annual Rate) Federal State and local Source: BEA, SAAR, Bil.Chn.2009$ Employment Employment conditions remained robust. During the 12-month period of November 2017 October 2018, the economy created 2.51 million payroll jobs, more than the 2.15 million jobs that were added in the same 12-month period one year ago. The economy has been steadily adding employment since October 2010, with 19.4 million jobs to date, which more than offsets the 9.1 million jobs lost during 2007 2010. 4000 2000 0-2000 -4000-6000 -8000 Exhibit 1.5: 12-Month Payroll Employment Change ('000) During the 12-month period of November 2017 October 2018, employment expanded in all sectors, except information services (-15,000) and utilities (-2,000). The retail trade sector, which has lost jobs in the past, generated 37,000 jobs. Exhibit 1.6: Payroll Employment: 12-Month Change ('000) Government Leisure/Hospitality Educ./Health Prof./Bus. Services Financial Activities Information Utilities Transp./Warehousing Retail Trade Wholesale Trade Manufacturing Construction Mining/Logging -15-2 66 37 94 65 115 184 254 296 330 Source: BLS 499 516-100 0 100 200 300 400 500 600 Source: BLS 6
2006-Jan 2006-Aug 2007-Mar 2007-Oct 2008-May 2008-Dec 2009-Jul 2010-Feb 2010-Sep 2011-Apr 2011-Nov 2012-Jun 2013-Jan 2013-Aug 2014-Mar 2014-Oct 2015-May 2015-Dec 2016-Jul 2017-Feb 2017-Sep 2018-Apr Jan/2000 Jan/2001 Jan/2002 Jan/2003 Jan/2004 Jan/2005 Jan/2006 Jan/2007 Jan/2008 Jan/2009 Jan/2010 Jan/2011 Jan/2012 Jan/2013 Jan/2014 Jan/2015 Jan/2016 Jan/2017 Jan/2018 Jan/2000 Nov/2000 Sep/2001 Jul/2002 May/2003 Mar/2004 Jan/2005 Nov/2005 Sep/2006 Jul/2007 May/2008 Mar/2009 Jan/2010 Nov/2010 Sep/2011 Jul/2012 May/2013 Mar/2014 Jan/2015 Nov/2015 Sep/2016 Jul/2017 May/2018 In September 2018, employment increased at the fastest pace from year-ago levels in Florida, Utah, Nevada, Texas, Washington, Oregon, Idaho, Arizona, and Colorado, with employment growing by at least 2.5 percent. Nationally, non-farm employment rose 1.7 percent. Inflation and Interest Rates With sustained growth, inflation has trended up. In October 2018, prices for all items (CPI) rose 2.5 percent from the levels one year ago. Core inflation, which measures the change in prices other than food and energy, rose to 2.1 percent. The Federal Open Market Operations Committee (FOMC) seeks to keep inflation at two percent. Towards this objective, FOMC has raised the federal funds target range thrice in 2018, to a range of 2 to 2.25 by September 2018, an increase of 75 basis points since December 2017 (1.25-1.5). With the higher target, the 30-year fixed rate for mortgages rose to an average of 4.83 percent in October 2018 (3.92 percent in October 2017). Exhibit 1.9: Inflation 6.0 4.0 2.0 0.0 All Items All Items, Less Food and Energy The labor market continued to tighten. The unemployment rate dropped to 3.7 percent in September and October 2018, a level last reached in September and October 1969. 12 10 8 6 4 2 0 Exhibit 1.8: Unemployment -2.0-4.0 10.0000 8.0000 6.0000 4.0000 2.0000 0.0000 Exhibit 1.10: Interest Rates Federal Funds Rate (Midpoint) 30-Year Fixed Rate for Mortgages Source: BLS Source: BLS Source: FRB, Freddie Mac 7
07Q1 07Q4 08Q3 09Q2 10Q1 10Q4 11Q3 12Q2 13Q1 13Q4 14Q3 15Q2 16Q1 16Q4 17Q3 18Q2 Billions Commercial space is concentrated in large buildings, yet large buildings are a relatively small number of the overall stock of commercial buildings. Based on Energy Information Administration data approximately 72 percent of commercial buildings are less than 10,000 square feet in size. 1 An additional eight percent of commercial buildings are less than 17,000 square feet in size. In short, the commercial real estate market is bifurcated, with the majority of buildings (81 percent) relatively small (SCRE), but with the bulk of commercial space (71 percent) in larger buildings (LCRE). Likewise, commercial sales transactions are measured and reported based on deal value. Commercial deals at the higher end $2.5 million and above comprise a large share of investment sales, and generally receive most of the press coverage. Smaller commercial transactions tend to be obscured given their values. However, these smaller properties comprise the backbone of daily economic activity e.g. neighborhood shopping centers, warehouses, small offices, supermarkets, etc. Given the importance of these buildings to local communities, and REALTORS active roles in serving these markets, this report focuses on illuminating trends in both large and small markets. Large Cap Commercial Real Estate Markets markets posted record cumulative year-to-date sales during the third quarter, including Phoenix, Philadelphia, Raleigh/Durham and the Inland Empire. Investment volume in the large cap space totaled $152.7 billion, a 17 percent jump from the same period in 2017, according to Real Capital Analytics (RCA). Deal volume advanced for all property types, except industrial, with retail properties notching a 90 percent gain. Apartment sales accounted for the largest share of transactions, with $48.3 billion in closed transactions, a 14 percent gain year-over-year, based on RCA data. Office properties captured the second largest share of investor dollars, with $34.3 billion in sales. Office investment volume was up 15 $200 $180 $160 $140 $120 Exhibit 2.1: CRE Sales Volume ($2.5M+) Individual Portfolio Entity The third quarter witnessed a resurgence of large transactions, leading to higher deal volume and prices. However, pricing expectations widened between buyers and sellers, as the rate of the 10- year Treasury Notes exceeded 3.2 percent. Investment trends in LCRE maintained a broadbased approach, as sales in both gateway cities and secondary markets advanced. Several smaller $100 $80 $60 $40 $20 $- 1 Smith and Ratiu, (2015), "Small Commercial Real Estate Market," National Association of REALTORS Source: Real Capital Analytics 8
2001-Q1 2002-Q1 2003-Q1 2004-Q1 2005-Q1 2006-Q1 2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 2018-Q1 percent from a year ago. The retail sector closed $28.4 billion in sales during the third quarter, fueled by Brookfield s acquisition of GGP. Industrial transactions declined one percent from the prior year, with sales totaling $23.7 billion in the third quarter. Sales in the six major metros tracked by RCA rose 5 percent from a year ago, to $51.4 billion. However, large-cap transactions in secondary and tertiary markets inked a 25 percent leap during the quarter. As investor activity picked up, so did prices in LCRE markets, posting a 7.2 percent advance year-overyear in the third quarter of 2018, according to RCA s Commercial Property Price Index. All property types recorded higher prices during the quarter, with the apartment sector showing double-digit gains from a year ago. Prices in non-major markets increased at almost double the rate of those in the six major markets. Commercial pricing mirrored the mixed performance of various property sector, as illustrated by other commercial real estate price indices. The Green Street Advisors Commercial Property Price Index focused on large cap properties rose 1.7 percent on a yearly basis during the quarter, at a value of 131.5. The National Council of Real Estate Investment Fiduciaries (NCREIF) Price Index increased 6.5 percent year-over-year in the same period, to a value of 307.4. As interest rates rose, buyers expected cap rates to follow. However, strong demand maintained a slightly downward trend for cap rates in the third quarter. Based on RCA data, cap rates for all properties averaged 6.7 percent during the quarter. Apartment and office transactions continued experiencing slight cap rate compression, with an average of 5.4 percent and 6.6 percent, respectively. Industrial transactions experienced a 13 bps increase in cap rates, while retail deals showed sideways movement, both with an average of 6.5 percent. 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Exhibit 2.2: Commercial Property Price Indices NCREIF Real Capital Analytics Exhibit 2.3: NCREIF Property Index Returns 2018.Q3 NATIONAL 1.67% OFFICE 1.69% INDUSTRIAL 3.36% RETAIL 0.56% APARTMENT 1.55% Green Street Advisors Source: National Council of Real Estate Investment Fiduciaries 9
2008.Q4 2009.Q3 2010.Q2 2011.Q1 2011.Q4 2012.Q3 2013.Q2 2014.Q1 2014.Q4 2015.Q3 2016.Q2 2017.Q1 2017.Q4 2018.Q3 2008.Q4 2009.Q3 2010.Q2 2011.Q1 2011.Q4 2012.Q3 2013.Q2 2014.Q1 2014.Q4 2015.Q3 2016.Q2 2017.Q1 2017.Q4 2018.Q3 Small Cap Commercial Real Estate Markets Following a moderation in momentum during the second quarter, small cap markets rebounded in the third quarter of 2018, as investors remained focused on higher yields. Commercial real estate sales in SCRE markets increased by 1.6 percent from the same quarter in 2017. The shortage of available commercial inventory remained ranked as the top concern for REALTORS, fueling continued increases in transaction prices. Close to 40 percent of respondents to a market survey ranked tight inventory as the number one issue affecting their markets, followed by a third of respondents who indicated that the pricing gap between buyers and sellers was a main issue. Exhibit 2.4: Sales Volume (YoY % Chg) Prices in SCRE markets rose 1.4 percent during the third quarter of this year. The gain was the softest since the fourth quarter of 2013, and follows the strong appreciation trend from 2016-17. Capitalization rates in SCRE markets moved sideways for the third quarter in a row. Based on RCA data, cap rates for core properties averaged of 6.6 percent. Exhibit 2.5: Sales Prices (YoY % Chg) 200% Real Capital Analytics CRE Markets REALTOR CRE Markets 15.0% Real Capital Analytics CRE Markets REALTOR CRE Markets 150% 10.0% 100% 50% 5.0% 0.0% -5.0% 0% -50% -10.0% -15.0% -20.0% -100% Sources: National Association of REALTORS, Real Capital Analytics -25.0% Sources: National Association of REALTORS, Real Capital Analytics 10
10Q1 10Q3 11Q1 11Q3 12Q1 12Q3 13Q1 13Q3 14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 17Q3 18Q1 18Q3 International transactions remained a fixture in REALTORS CRE markets in the final quarter of the year, accounting for 12.0 percent of responses to a survey. The average international sale price was $5.1 million in the third quarter of the year. Indicating a likely preference for safety of capital over returns, the average cap rate for international deals in SCRE markets averaged 6.4 percent. Longer-dated bond yields kept on an upward path in the third quarter of 2018. The Treasury 10-year note averaged 2.88 percent in the third. However, the rate picked up in November, moving to 3.13 percent in November of this year. The rising 10-year Note rate narrowed the spread with SCRE cap rates below 400 bps, as forward expectations project further spread compression. 8.0% Exhibit 2.6: Cap Rates - 2018.Q3 RCA Markets REALTOR Markets 1200 Exhibit 2.7: CRE Spreads: Cap Rates to 10- Yr. T-Notes (bps) RCA Cap Rates REALTORS Cap Rates 7.0% 6.0% 5.0% 1000 800 4.0% 600 3.0% 400 2.0% 1.0% 0.0% Office Industrial Retail Apartment Sources: National Association of REALTORS, Real Capital Analytics 200 0 Sources: National Association of REALTORS, Real Capital Analytics 11
Large Cap Commercial Real Estate Markets The commercial fundamentals in LCRE markets continued to provide solid performance during the second quarter of 2018, benefitting from strong economic tailwinds. While demand maintained course, market metrics were more nuanced across the core property sectors. Office buildings experienced continued demand in the third quarter of 2018, as employment in officeusing industries remained positive. Net absorption of office spaces totaled 11.0 million square feet during the quarter, according to CBRE. On the supply side, suburban completions remained strong, but new downtown spaces slowed. The quarter notched 7.4 million square feet of new space delivered. According to CBRE, over 75 percent of newlyfinished space was preleased, as tenants continue to seek quality work accommodations. Reflecting the demand-supply balance, the office vacancy rate declined 10 basis points to 12.8 percent. The asking rent for office space nationally averaged $33.0 per square foot. Demand for industrial properties was solid in the third quarter of this year, driven by strong consumer spending and industrial production. Industrial net absorption totaled 61.5 million square feet during the third quarter, according to CBRE data. The solid demand outpaced new deliveries, as completions totaled 49.9 million square feet, and pushed down the vacancy rate to 4.3 percent. Industrial asking rents advanced in the third quarter to $7.21 per square foot, a 5.6 percent year-over-year increase. third quarter, according to CBRE. Retail construction activity declined, as completions totaled 5.8 million square feet. The quarter also witnessed the Sears announcement of Chapter 11 bankruptcy, which is projected to impact availability going forward. The retail availability rate slid to 6.4 percent, as asking retail rents reached $17.41 per square foot, a 4.3 percent increase year-over-year. The strong economic performance coupled with a growing population continue to favor demand for housing. In addition, rising mortgage rates and continued tightness in residential housing, played in favor of the multifamily sector, as demand outpaced completions. Net absorption of multifamily space totaled 316,700 units over the 12 months ending in September 2018, according to CBRE. Construction of multifamily properties maintained momentum, with 276,300 units delivered over the same period. The national vacancy rate declined 40 basis points from a year ago, to an average of 4.0 percent. Apartment effective rents rose 2.6 percent yearover-year, to an average of $1,634 per month during the quarter. Consumer optimism was robust during the third quarter, buoyed by a low unemployment rate and rising wages. With retail spending rising, demand for retail spaces advanced. Net absorption of retail properties totaled 13.3 million square during the 12
2010.Q1 2010.Q3 2011.Q1 2011.Q3 2012.Q1 2012.Q3 2013.Q1 2013.Q3 2014.Q1 2014.Q3 2015.Q1 2015.Q3 2016.Q1 2016.Q3 2017.Q1 2017.Q3 2018.Q1 2018.Q3 % Change, Quarter-over-quarter 2009.Q2 2010.Q1 2010.Q4 2011.Q3 2012.Q2 2013.Q1 2013.Q4 2014.Q3 2015.Q2 2016.Q1 2016.Q4 2017.Q3 2018.Q2 Small Cap Commercial Real Estate Markets Commercial fundamentals in REALTORS markets posted advances during the quarter, even as momentum moderated. Leasing volume advanced by 2.0 percent from the preceding quarter, as demand for space maintained an upward trend in small cap markets. New construction rose accelerated, with a 4.9 percent increase from the prior quarter. Leasing rates increased by 2.0 percent, and concessions declined 2.7 percent. 15% 10% 5% Exhibit 3.1: REALTORS Fundamentals New Construction Leasing Volume Lease terms remained consistent with historical trends, as 36-month and 60-month leases accounted for 61 percent of total. Two and threeyear leases comprised close to 20 percent of total during the quarter. With demand on a positive trajectory, vacancy rates declined during the quarter, as they reflected the mixed conditions of the core property types. The office and retail vacancy rates rose in SCRE markets, to 12.9 percent and 12.6 percent, respectively, compared with a year ago. Industrial properties mirrored solid demand, leading to declining vacancies, averaging 6.8 percent in the third quarter. Multifamily spaces contended with rising supply, which pushed vacancy rates up 40 basis points, to 6.2 percent. 0% -5% -10% -15% 30.0% Exhibit 3.2: REALTORS Commercial Vacancy Rates Office Industrial Retail Multifamily Hotel -20% 25.0% -25% -30% Source: National Association of Realtors Tenants in REALTORS markets remained focused on smaller footprints. In the second quarter, the 5,000 square feet and below segment accounted for 77.0 percent of activity. The 5,000 7,499 square feet segment posted rising tenant demand, and accounted for 11.0 percent of activity during the quarter. The 10,000 49,999 square feet segment comprised 6.0 percent of reported transactions. The 50,000 square feet and above segment accounted for 3.0 percent of total activity. 20.0% 15.0% 10.0% 5.0% 0.0% Source: National Association of Realtors 13
Prospects for residential real estate (multi-family) remained solid, with rental vacancy rates edging lower in the second quarter of 2018. After trending upwards starting from 6.7 percent in 2016.Q2 to a peak of 7.5 percent in 2017.Q3, the vacancy rate started trending downwards, to 6.8 percent in 2018 Q2, according to the Census Bureau. Vacancy rates fell again as housing construction for 1-family and multi-family units has been falling behind household formation. Seasonally-adjusted housing starts were at 1.26 million as of September 2018, short of the 1.56 net new households formed during September 2017 September 2018. In addition, there was demand for about 510,000 housing units to replace damaged or lost stock. Among the large metro areas with vacancy rates lower than the national average were: Denver- Aurora Lakewood (2.4%), Boston-Cambridge- Newton (3.3%), San Jose-Sunnyvale-Santa Clara (3.6%), Seattle-Tacoma (4.1%), Los Angeles- Long Beach Anaheim (4.2%), New York-Newark-Jersey City (4.5%), San Francisco-Oakland-Hayward (5.5%), and Washington-Alexandria-Arlington (5.5%). Recently, Amazon announced New York and Crystal City in Arlington, VA as the sites of its second headquarters, with 25,000 new jobs expected in each metro area in the next 10-15 years, or about 2,000 jobs annually. Two thousand jobs per year seems modest given these metro areas strong job growth. During the 2017.Q2 2018.Q2 period, Washington- Alexandria-Arlington created 48,500 jobs, while New York-Newark-Jersey City created an average of 51,500 jobs per year. However, the entry of Amazon is expected to spur the clustering of additional business establishments in the region, leading to additional jobs beyond the 25,000 Amazon jobs per metro area. 14
Economy Given the year-to-date growth, NAR forecasts economic output to expand at a stronger pace of 3.1 percent in 2018. This forecast factors in the increased consumer and investment spending arising from the tax changes under the Tax Cuts and Jobs Act, which includes a reduction in the corporate tax rate from 35 percent to 21 percent. Payroll employment is projected to increase 1.7 percent for the year, which would push the unemployment rate down to 3.9 percent. Inflation is expected to rise to 2.3 percent in 2018 as the economy continues to reach its full capacity and as oil prices continue to recover. NAR forecasts the prime rate to hit 4.9 percent and the 30-year government bond rate to move up to 3.2 percent for the year. Under tighter monetary, NAR expects GDP growth to ease to 2.7 percent in 2019. Annual Growth Rate, % 2016 2017 2018 2019 Real GDP 1.6 2.2 3.1 2.7 Nonfarm Payroll Employment 1.8 1.6 1.7 1.5 Consumer Prices 1.3 2.1 2.3 2.6 Level Consumer Confidence 100 121 129 128 Percent Exhibit 4.1: U.S. ECONOMIC November 2018 Unemployment 4.9 4.4 3.9 4.0 Fed Funds Rate 0.4 1.0 1.8 2.7 3-Month T-bill Rate 0.3 1.0 2.0 2.9 Prime Rate 3.5 4.1 4.9 5.8 10-Year Gov t Bond 1.8 2.3 3.0 3.6 30-Year Gov t Bond 2.6 2.9 3.2 3.8 Source: National Association of REALTORS 15
Commercial Real Estate Exhibit 4.2: Commercial Real Estate Vacancy Forecast (%) 2017.Q32017.Q42018.Q12018.Q22018.Q32018.Q42019.Q12019.Q22019.Q32019.Q42020.Q12020.Q2 2017 2018 2019 Office 12.7 12.0 12.7 12.4 12.9 13.7 13.2 13.1 13.1 13.1 13.1 13.2 12.8 12.9 13.1 Industrial 8.9 7.8 7.4 7.7 6.8 7.3 7.3 7.0 6.7 6.4 6.2 6.0 8.8 7.3 6.8 Retail 12.1 11.4 12.0 12.0 12.6 12.7 12.8 12.8 13.1 13.4 13.6 13.8 11.8 12.3 13.0 Multifamily 5.3 5.0 5.5 6.1 6.2 6.4 6.3 6.3 6.4 6.5 6.7 6.9 5.5 6.0 6.4 Source: National Association of REALTORS As economic activity remains positive, commercial leasing fundamentals are expected to maintain their trajectory this year. Vacancy rates will likely provide mixed results, while cash flows should continue rising. Office and retail properties will likely see vacancies move sideways, while industrial spaces will find rent growth advancing at a steady pace. On the investment side, continued increases in interest rates are expected to maintain upward pressure on investment yields. The Federal Reserve s Chairman Powell signaled a moderation in the tempo of the funds rate hikes, but remained committed to unwinding its balance sheet and addressing inflationary concerns in 2019. 16
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 produce timely, data-driven market analysis and authoritative business intelligence to serve members, and inform consumers, policymakers and the media in a professional and accessible manner. To find out about other products from NAR s Research, visit www.nar.realtor/research-and-statistics NATIONAL ASSOCIATION OF REALTORS RESEARCH GROUP 500 New Jersey Avenue, NW Washington, DC 20001 202.383.1000
2018.Q4