Economists' Outlook

Housing stats and analysis from NAR's research experts.

Commercial real estate continued on an upward trajectory in 2015, building on improving fundamentals and investment momentum.  In tandem with rising economic conditions, leasing strengthened during the year.  Growing net absorption led to declining vacancies and accelerating rent growth.  As employment gains are expected to continue into 2016, demand for commercial space is expected to advance.

The improving employment landscape in office-using industries drove demand for office space.  Almost half of office leasing activity during the year was made up of company expansions, a positive development. Even with 44.2 million square feet of new supply, office vacancy declined 40 basis points year-over-year, to the lowest level in eight years—14.7 percent by the fourth quarter. Rents for office properties rose 2.2 percent during the fourth quarter, to $31.26 per square foot, according to JLL.

Industrial properties found favorable conditions in 2015 due to international trade and solid gains in online retail sales.   National vacancies for industrial buildings dropped in the single digits during the year, leading to higher rents.

Net absorption of industrial space totaled 231.2 million square feet in 2015, based on data from JLL. With new supply clocking in at 177.3 million square feet, availability rates declined to 6.4 percent by the fourth quarter.  Industrial rents rose 5.6 percent over the year, to an average of $4.93 per square foot.

With consumers keeping spending on an upward trajectory, the retail sector recorded positive demand matched by restrained supply, leading to declining vacancies and moderately growing rents.

Retail net absorption totaled 88.3 million square feet in 2015, according to JLL. Constrained new supply in high-demand areas lowered vacancies to 5.7 percent by the last quarter of the year. Rents increased 2.1 percent during the year, to an average $15.84 per square foot.

Demand for multifamily properties continued on an upward path. Renter occupied housing units totaled 42.6 million units in the fourth quarter of 2015, a 300,000 unit advance from the fourth quarter of 2014, based on U.S. Census Bureau data. National vacancy rates averaged 7.0 percent for rental housing during the fourth quarter, unchanged from the same period in 2014. Median rents for rental units averaged $850 by the end of the year.

Underpinning these improving fundamentals, commercial asset cash flow is certainly on the rise. Based on the REALTORS®Commercial Lending Trends 2016 report, net operating income (NOI) increased in 57 percent of markets. For 22 percent of REALTORS®, NOI increased in the 1 – 4 percent range. For 21 percent of respondents, NOI rose between 5 – 9 percent, while for 14 percent of commercial practitioners, the increase in NOI occurred in the 10 – 15 percent range.

net operating

According to the 2016 data, the increase in NOI moderated from the accelerating trends of the past few years. The percentage of REALTORS® who reported “No Change” in NOI rose from an average of 25 percent during 2012 - 2014 to 32 percent in 2015, and then declined to 29 percent this past year. The figure indicates a broadening in the patterns of CRE fundamentals recovery.

For more information and the full report, access NAR’s Commercial Lending Trends 2016 at

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