Commercial Construction Accelerates in REALTORS®’ Markets in Q3.2015

Commercial space is heavily concentrated in large buildings, but 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.  An additional 8 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 the larger buildings (LCRE).

While large buildings in top-tier markets generally receive most of the press coverage, smaller commercial properties tend to be obscured given their relatively smaller size. However, these smaller properties provide the types of commercial space that the average American encounters on a daily basis—e.g., strip shopping centers, warehouses, small offices, supermarkets, etc.  These are the types of buildings that are important in local communities and REALTORS® are active in serving these markets.

NAR’s Commercial Real Estate Market Trends gathers market information for SCRE properties and transactions, and summarizes sales and rental activity based on a quarterly survey of commercial REALTOR® practitioners. Based on the latest report, fundamentals improved during the third quarter 2015. Leasing volume during the second quarter rose 3.8 percent compared with the second quarter 2015. Leasing rates advanced at a steady pace, rising 2.5 percent in the third quarter, compared with the 2.7 percent advance in the previous quarter.

NAR members’ average gross lease volume for the quarter was $567,257, 9.8 percent lower than the previous period. New construction accelerated, posting a 6.6 percent gain from the second quarter of this year, and a marked increase from the 2.7 percent rise recorded in the first quarter 2015.

Tenant demand remained strongest in the 5,000 square feet and below, accounting for 72 percent of leased properties. However, demand for space in the 5,000 – 7,499 square feet more than doubled during the third quarter, comprising 13 percent of total. Lease terms remained steady, with 36-month and 60-month leases capturing 64 percent of the market.

To access the latest Commercial Real Estate Market Trends report, visit: http://www.realtor.org/research-and-statistics/commercial-real-estate-market-survey.