A Steady Commercial Outlook For 2017
Commercial real estate remains on stable footing for the remainder of 2017 according to recent surveys by the National Association of REALTORS® and other forecasters:
The latest NAR Commercial Real Estate Market Survey found strong underlying demand for commercial properties. Compared to a year ago, first quarter 2017 sales volume rose 12.9 percent; sale prices increased 5.5 percent, and the average transaction value equaled $1.1 million. More recent reports from commercial market researcher, REIS, similarly support this continued upward trend, howsoever slight.
Here is a breakdown by property sector, according to REIS’s “First Glance” report.
- Office: In contrast to soaring financial markets, office leasing remained flat or subdued in first quarter 2017. The national vacancy rate held at 15.8%, unchanged since the end of 2016. Analysts predict only slight improvement as recent job growth slowly continues.
- Industrial: The sector outperformed other property types in occupancy and rent growth, particularly in the Warehouse/Distribution and Flex/R&D sub-sectors. Already enjoying increased demand from the surge of e-commerce, industrial real estate should see further vacancy declines to 7.1 percent, if the promised resurgence in U.S. manufacturing materializes.
- Retail: Despite national brand store closures across the country, retail statistics recorded little change in the first quarter. Neighborhood shopping center vacancy rates held steady at 9.9%, unchanged from year-end 2016 (see “retail” companion article in this Commercial Chronicle).
- Apartments: The multifamily sector will see little change in overall vacancy rates as new apartment completions keep availability mostly flat. The national vacancy rate rose by 10 basis points in the first quarter of 2017, to 4.3% in the first quarter, according to REIS. Effective rent growth slowed to a crawl, rising by only 0.2%. This marks the weakest increase in effective rents in eight years. Nonetheless, the apartment sector should maintain its top status among all commercial sectors this year, as affordability challenges keep the nation’s low homeownership rate from meaningful improvement.
The possibility of a more tax-friendly business environment could quicken the pace of economic growth and support stronger commercial market fundamentals in 2018.
Source: National Association of REALTORS®, 2017 Q-1 Report
REIS® July 2017 Summary Report