Demand in REALTORS® Commercial Markets Outpaces Construction in Q2.2015

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.[1] 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 second quarter of 2015. Leasing volume during the second quarter rose 4.7 percent compared with the first quarter 2015. Leasing rates advanced at a steady pace, rising 2.7 percent in the second quarter, compared with the 2.8 percent advance in the previous quarter.

NAR members’ average gross lease volume for the quarter was $629,000. New construction accelerated, posting a 5.7 percent gain from the first quarter of this year, a pace which more than doubled 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 84.0 percent of leased properties. Lease terms remained steady, with 36-month and 60-month leases capturing 60.0 percent of the market.