2015 05 commercial real estate outlook 2015-05-29

8/9/2019 2015 05 Commercial Real Estate Outlook 2015-05-29

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National Association of REALTORS®

COMMERCIAL REAL ESTATE

OUTLOOK: 2015.Q2


2/11

Economic activity lost momentum during thefirst quarter 2015, with the second estimatefrom the Bureau of Economic Analysisplacing real gross domestic product (GDP)at $16.3 trillion, a negative 0.75 percentannual rate of growth. All major GDPcomponents, except personal consumption,declined during the quarter.

Business investments decreased at anannual rate of 2.8 percent, as commercialreal estate construction felt the brunt of theprolonged winter weather in a large swath ofthe country. Investment in structuresdropped at an annual rate of 20.8 percent inthe first quarter, totaling $440.8 billion.Business spending on equipment rose at anannual rate of 2.7 percent, aided by a 15.8percent advance in transportationequipment. Companies increased

investments in intellectual property productsby 3.6 percent, driven by spending onsoftware.

In line with the weather, manufacturingactivity slowed in the first quarter. Based onthe Census Bureau’s advance report,

manufacturers’ new orders of durable goods

declined at an annual rate of 3.3 percent,while orders for capital goods slid 3.2percent. Shipments of manufactured

durable goods posted a 1.1 percent declineon an annual basis, while those for capitalgoods decreased at a 2.0 percent rate.Manufacturers’ inventories for durable

goods rose at a 2.5 percent and for capitalgoods at 0.8 percent annual rate.International trade activity continued at aslower pace in the first quarter. However, asthe dollar’s value continued strengthening

against most currencies, the trade deficitwidened, with the 7.2 percent decline in

exports outmatching the 1.8 percent annualgrowth rate in imports.

Net exports of goods and services totaled negative $202.8 billion in the first quarter othe year.

Government spending totaled $2.9 trillionadjusted for inflation, in the first quarter, a1.1 percent decline in annual terms.Spending at the federal level was flat,posting a slight 0.1 percent rise, boosted bnondefense spending. State and localgovernments cut back on spending at anannual rate of 1.8 percent.

Consumer spending was the relativelyupbeat spot in the GDP figures for the first

quarter. Real personal consumptionexpenditures totaled $11.2 trillion, a 1.8percent increase on an annual basis.Spending on services outpacedconsumption of goods during the period,rising at a 2.5 percent annual rate.Consumers upped their householdexpenditures across all subcategories.

Economic Momentum Slips in First Quarter

eorge Ratiu

ector, Quantitative &

mmercial Research

COMMERCIAL REAL ESTAT

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-2.1

4.65.0

2.2

-0.8

2.33.

GDP (% Annual Chg)

Source: NAR


3/11

3

ending on housing and utilities rose 4.7 percent, whilealth care increased 5.3 percent. Spending onnsportation rose 3.6 percent, while expenditures ond services and lodging rose 2.1 percent. Financial

rvices and insurance spending increased at an annuale of 1.3 percent.

nsumers’ spending on goods continued in the first

arter, but at a much slower pace compared with theer half of 2014. Durable goods spending rose 1.1rcent, driven by purchases of recreational goods and

hicles, as well as furnishings and householdpliances. Purchases of nondurable goods were barelyher at 0.1 percent as consumers cut back on spendingrestaurants and department stores. With the cold winterather, spending on gasoline, fuel oil and other energyods rose 4.4 percent.

hile GDP figures painted a picture of an anemiconomy during the first quarter 2015, payrollployment trends provided a silver lining. Payrollployment rose from 140.8 million in January to 141.1

lion by the end of March 2015. Accounting for peopleding jobs and those losing jobs, the first quarterperienced a net employment of 767,000 jobs.


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

Service industries were the major providers of new jobsas education and health tied with trade transportation anutilities, each contributing 147,000 new positions.Professional and business services added 144,000 new jobs, while leisure and hospitality added 114,000 newemployees. Goods-producing industries provided 125,0new jobs, mostly in construction and manufacturing.

Another positive change on the employment frontoccurred in compensation. Adjusted for inflation, averaghourly earnings of all employees rose 2.2 percent on ayearly basis, during the first quarter 2015. Based on theBureau of Labor Statistics data, the increase stands out contrast to the past five years, during which real hourlyearnings declined 0.02 percent. For production andnonsupervisory employees real hourly earnings rose 2.6percent year-over-year.

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One-month Payroll Job Changes (in thousands)

Source: BLS

-8.00

-6.00

-4.00

-2.00

0.00

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4.00

6.00

8.00

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Real Personal Income Excluding Transfer Receipts

(SAAR, Chn.2009$) %Chg YoY

Source: B


4/11

4

e unemployment rate declined from an average 5.7rcent in the fourth quarter 2014 to 5.6 percent in thet quarter 2015. The rate dropped to 5.4 percent as ofril of this year. However, with 157 million Americans inwork force, the labor force participation remained low,istering 62.8 percent over the period. On a quarterly

sis the labor force participation rate has stayed at theme level for the past four consecutive quarters. It was67.3 percent in the first quarter 2000.

nsumer confidence, as measured by The Conference

ard, reached 101.3 in the first quarter of this year, thehest level since the third quarter 2007. Separately, thensumer sentiment index compiled by the University ofchigan rose from 89.8 in the last quarter of 2014 to 95.5he first quarter 2015. This figure posted its highestue since the third quarter 2004.

oking ahead at the remainder of this year, NAR expectsDP to pick up pace over the next three quarters to annual rate of 2.3 percent. Payroll employment isojected to increase 2.0 percent, accompanied by an

employment rate of 5.4 percent. While the markets aretching the Federal Reserve’s anticipated hike in theds target rate, inflation remains contained, and is

ojected to reach 0.3 percent in 2015.


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2013 2014 2015 20

Annual Growth Rate, %

Real GDP 2.2 2.6 2.3 3.

Nonfarm Payroll

Employment 1.7 1.9 2.0 2.

Consumer Prices 1.5 1.6 0.3 3.

Level

Consumer Confidence 73 87 99 10Percent

Unemployment 7.4 6.1 5.4 5.

Fed Funds Rate 0.1 0.1 0.4 1.

3-Month T-bill Rate 0.1 0.1 0.6 1.

Corporate Aaa Bond Yield 4.3 4.2 4.0 5.

10-Year Gov’t Bond 2.6 2.6 2.2 3.

30-Year Gov’t Bond 3.4 3.4 3.0 4.

Source: National Association of REALTORS®


5/11

mmercial fundamentals continued on an upward trendhe first quarter 2015, despite a slumping economy,wever the pace moderated. Net absorption rose acrossproperty types, driving rents higher. As employment

ns are expected to continue into 2015, demand formmercial space is expected to advance.

ice absorption is projected to total 51.8 million squaret in 2015, leading vacancy rates on a gradual decline

15.5 percent by the end of the year. Office vacanciesntinue to be elevated due to employers extractingace-utilization efficiencies. Office rents are forecast toe 3.4 percent in 2015.

ustrial markets—especially ports and intermodaltribution centers—have been positioning for theening of the Panama Canal, with coastal marketsuring investments into infrastructure. Demand forustrial space is expected to total 108.8 million squaret in 2015. With new supply projected to reach 87.4lion square feet, availability rates will likely decline topercent by the fourth quarter. Industrial rents should

perience a 3.1 percent gain for the year.

th rising consumer confidence, the outlook for retailrkets is looking up. Coastal markets remain top

rformers, displaying low vacancies and rising rents.sorption is expected to reach 15.7 million square feetionally in 2015, lowering vacancies to 9.5 percent bylast quarter of the year. Rents are projected to rise 2.6

rcent this year.

Multifamily demand is expected to remain strong,benefitting from growing household formation. Howeverthis year supply of new space is projected to exceeddemand. Apartment net absorption is estimated to reacha little over 172,500 units in 2015, while new apartmentcompletions will add 230,200 units on the market. In turnapartment vacancies are expected to rise throughout theyear, and close the fourth quarter at 4.4 percent. Rentgrowth is projected to slow from above 4.0 percent overthe past few years to 3.6 percent in 2015.

Investment sales for commercial properties inREALTOR® markets picked up speed, rising 11 percenyear-over-year in the first quarter of 2015. Pricesadvanced 4 percent year-over-year during the period.Cap rates declined, averaging 7.8 percent in the firstquarter, a 45 basis point drop year-over-year.

The shortage of available inventory retained its numberone spot, as members reported not finding enoughsuitable properties. The perceived pricing gap betweensellers and buyers remained the second highest ranked

concern. REALTORS® indicated a moderation in thedirection of commercial business opportunities during thfirst quarter 2015, with a 3.8 percent quarterly increase,following a 5.1 percent rise during the last quarter 2014.

5


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ATIONAL 3.57%

OFFICE 3.30%

NDUSTRIAL 3.47%

ETAIL 4.93%

PARTMENT 2.85%

ource: National Council of Real Estate Investment Fiduciaries


6/11

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ICE 2015 II 2015 III 2015 IV 2016 I 2016 II 2016 III 2016 IV 2015 2016

ncy Rate 15.6% 15.6% 15.5% 15.6% 15.5% 15.5% 15.4% 15.6% 15.5%

Absorption ('000 sq. ft.) 11,080 13,050 14,220 15,565 12,850 15,133 16,490 51,772 60,039

pletions ('000 sq. ft.) 10,257 8,762 9,311 12,185 12,614 11,908 12,319 37,713 49,026

ntory ('000,000 sq. ft.) 4,151 4,160 4,169 4,182 4,194 4,206 4,218 4,169 4,218

Growth 0.8% 0.9% 0.9% 0.9% 0.9% 0.9% 1.0% 3.4% 3.7%

USTRIAL 2015 II 2015 III 2015 IV 2016 I 2016 II 2016 III 2016 IV 2015 2016

ncy Rate 8.4% 8.3% 8.2% 8.3% 8.1% 8.0% 8.0% 8.4% 8.1%

Absorption ('000 sq. ft.) 27,205 32,646 29,382 18,885 26,229 31,474 28,327 108,821 104,915

pletions ('000 sq. ft.) 27,099 25,350 16,609 15,397 22,728 21,262 13,930 87,415 73,317

ntory ('000,000 sq. ft.) 8,510 8,535 8,552 8,567 8,590 8,611 8,625 8,552 8,625

Growth 0.8% 0.8% 0.9% 0.8% 0.7% 0.8% 0.8% 3.1% 3.1%

AIL 2015 II 2015 III 2015 IV 2016 I 2016 II 2016 III 2016 IV 2015 2016

ncy Rate 9.6% 9.6% 9.5% 9.4% 9.2% 9.2% 9.1% 9.6% 9.2%

Absorption ('000 sq. ft.) 3,629 2,841 5,028 5,693 4,858 3,803 6,732 15,750 21,087

pletions ('000 sq. ft.) 2,028 2,355 2,450 2,940 2,853 3,312 3,445 8,924 12,550

ntory ('000,000 sq. ft.) 2,054 2,057 2,059 2,062 2,065 2,068 2,072 2,059 2,072

Growth 0.7% 0.7% 0.7% 0.6% 0.7% 0.9% 0.9% 2.6% 3.1%

LTI-FAMILY 2015 II 2015 III 2015 IV 2016 I 2016 II 2016 III 2016 IV 2015 2016

ncy Rate 4.3% 4.3% 4.4% 4.4% 4.4% 4.6% 4.6% 4.3% 4.5%

Absorption (Units) 40,147 37,248 50,673 39,616 35,778 33,195 45,158 172,524 153,747

pletions (Units) 60,745 61,906 62,520 38,526 51,944 52,937 53,462 230,224 196,889

ntory (Units in millions) 10.3 10.4 10.5 10.5 10.6 10.6 10.7 10.5 10.7

Growth 0.9% 0.9% 0.8% 0.9% 0.8% 0.8% 0.8% 3.6% 3.3%

ces: National Association of REALTORS® / Reis, Inc.


7/11

7ATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research-and-statistics

ce: NAR, Reis, Inc. Office Industrial Retail Multifamiquerque NM 16.7 11.4 3.5

nta GA 19.2 13.1 12.4 6.0

tin TX 16.1 10.0 6.2 7.5

more MD 15.8 10.9 6.1 4.3

mingham AL 13.1 13.6 7.2

on MA 12.9 17.2 5.9 5.4

alo NY 16.8 13.0 3.1

tral New Jersey NJ 20.8 9.5 3.0

rleston SC 13.3 9.2 6.8

rlotte NC 16.7 12.1 9.6 6.8

ttanooga TN 14.4 14.5 5.7

ago IL 17.7 8.4 11.9 3.7

innati OH 20.2 8.4 11.8 3.8

eland OH 22.8 8.8 13.9 2.8

rado Springs CO 17.3 14.4 5.5

mbia SC 16.3 10.7 6.2

mbus OH 18.3 8.6 15.3 5.7

as TX 22.1 12.0 11.9 5.8

ton OH 25.5 16.2 4.4ver CO 17.7 7.5 10.6 5.3

oit MI 24.6 10.8 11.7 2.9

rict of Columbia DC 9.0 7.6

field County CT 21.1 4.7 7.1

Lauderdale FL 18.6 8.2 9.3 5.2

Worth TX 15.2 9.3 11.3 4.3

ensboro/Winston-Salem NC 20.7 10.8 6.3

enville SC 18.4 13.0 4.6

ford CT 19.2 9.6 3.4ston TX 15.7 8.0 10.9 6.9

anapolis IN 19.3 9.7 14.6 6.2

sonville FL 20.4 6.9 12.9 7.0

sas City MO 16.8 9.9 11.3 5.6

xville TN 15.0 10.8 4.0

Vegas NV 24.1 12.2 5.1

ngton KY 17.1 8.0 5.0

e Rock AR 11.6 11.0 7.0

g Island NY 13.5 4.9 3.5


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ce: NAR, Reis, Inc. Office Industrial Retail MultifamiAngeles CA 14.8 3.6 5.7 3.5

sville KY 14.8 9.7 6.1

mphis TN 22.8 14.1 11.1 7.9

mi FL 14.9 5.3 6.3 4.4

waukee WI 18.1 7.2 11.7 3.8

neapolis MN 15.9 11.2 3.7

hville TN 13.2 6.8 7.9 5.8

w Haven CT 16.6 12.8 2.7

w Orleans LA 12.6 10.7 6.0w York NY 8.9 4.2

folk/Hampton Roads VA 15.0 9.2 5.5

thern New Jersey NJ 18.5 5.4 4.7

and-East Bay CA 17.1 8.2 6.0 2.8

homa City OK 16.9 12.8 5.7

aha NE 13.4 8.8 3.8

nge County CA 16.3 3.4 4.6 3.3

ndo FL 16.5 10.3 11.0 6.1

m Beach FL 16.5 5.5 9.5 5.6adelphia PA 13.3 9.5 9.4 3.8

enix AZ 25.1 11.0 10.2 5.0

burgh PA 15.7 8.8 7.7 3.9

land OR 11.6 7.7 7.4 4.2

vidence RI 16.1 12.5 2.7

igh-Durham NC 15.1 13.6 8.3 7.6

mond VA 12.3 11.4 9.6 4.9

hester NY 17.0 12.2 3.0

amento CA 20.3 11.1 10.0 2.6Lake City UT 17.7 12.7 4.3

Antonio TX 17.7 6.9 10.7 6.8

Bernardino/Riverside CA 22.4 7.2 9.1 2.5

Diego CA 14.7 6.4 6.1 2.8

Francisco CA 10.6 10.4 3.0 3.8

Jose CA 16.3 16.2 4.6 3.4

tle WA 12.2 5.4 6.2 5.2

ouis MO 17.0 6.3 11.7 4.2


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ce: NAR, Reis, Inc. Office Industrial Retail Multifamiurban Maryland MD 15.8 10.5 8.0 4.8

urban Virginia VA 17.6 10.3 5.4 5.7

cuse NY 14.5 14.4 3.0

oma WA 15.2 12.4 3.5

pa-St. Petersburg FL 19.7 7.8 10.6 5.0

on AZ 17.3 9.4 5.4

a OK 16.3 14.8 5.2

tura County CA 16.4 8.5 2.9

tchester NY 18.4 7.4 2.9hita KS 17.6 13.2 4.3


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-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Sales Volume Sales Prices

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Direction of Business Opportunity

%

%

%

%

%

%

%

%

REALTORS® Commercial Capitalization Rates

Office Industrial Retail Multifamily Hotel

4

5

714

18

24

29

Over $10 M

tween $5 M and $10 M

$2 M and $5 Metween $1 M and $2 M

tween $500K and $1 M

ween $250K and $500K

Under $250K

Dollar amount of last transaction (%)

0%

10%20%

30%

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50%

60%

70%

80%

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2 0 1 4 Q 4

REALTORS® CRE Transaction Closing Rate


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The Research Division of the National Association of REALTORS® monitors and analyzes monthly andquarterly economic indicators, including retail sales, industrial production, producer price index, grossdomestic product and employment data which impact commercial markets over time. In addition, theResearch Division provides several products covering commercial real estate:

• Commercial Real Estate Quarterly Market Survey

• Commercial Real Estate Lending Survey

• Commercial Member Profile

• Expectations and Market Realities in Real Estate 2015

• CCIM Quarterly Market Trends

• SIOR Commercial Real Estate Index

Although the information presented in this report 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. All opinions, assumptions and estimates constitute NAR’s judgment as of the date of this

publication and are subject to change and evolving events. Actual results may vary from forecast results

For more information:

Copyright © 2015 NATIONAL ASSOCIATION OF REALTORS®. Reproduction, reprinting or retransmission inany form is prohibited without written permission. For questions regarding this matter please [email protected].

0 New Jersey Avenue, NW • Washington, DC 20001 – 2020

0.874.6500 • www.REALTOR.org


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www.facebook.com/narresearchgroup

twitter.com/#!/NAR_Research

REALTOR.org/research-and-statistics

economistsoutlook.blogs.realtor.org

www.ccim.com/resources/itq

www.siorprofessionalreport-digital.com

CONTACT

Lawrence Yun, PhD

Chief Economist, Sr. Vice

President, Research

[email protected]

George Ratiu

Director, Quantitative &

Commercial Research

[email protected]

2015 05 commercial real estate outlook 2015-05-29

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