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Commercial space is heavily concentrated in large buildings, but large buildings are a relatively small number of the overall stock of commercial buildings. In terms of inventory, commercial real estate markets are bifurcated, with the majority of buildings (81 percent) being relatively small (SCRE), while the bulk of commercial space (71 percent) is concentrated in larger buildings (LCRE)[1]. The bifurcation continues along transaction volumes as well, with deals at the higher end—$2.5 million and above—comprising a large share of investment sales, while transactions at the lower end make up a smaller piece of the pie.
Data are readily available for transactions in excess of $2.5 million from several sources, including Real Capital Analytics (RCA). However, in general, data for smaller transactions—many of which are handled by REALTORS®—are less widely available. NAR’s Commercial Real Estate Market Trends gathers market information for SCRE properties and transactions, mostly valued below $2.5 million.
Commercial real estate sales volume in LCRE markets posted a 23 percent year-over-year increase, totaling $118 billion during the second quarter of 2015, based on RCA data. While the pace remained elevated, it represented a slowdown from the first quarter’s 49 percent yearly increase. Over the first half of this year, sales volume totaled $255.1 billion, a 36 percent increase over the first half of 2014.
In SCRE markets sales also advanced, with REALTORS® reporting rising investment volume. Sales of commercial properties during the second quarter rose 9.1 percent on a year-over-year basis. For the first half of the year, sales in REALTORS® markets advanced 11 percent year-over-year.
Prices in LCRE markets rose by 3.1 percent during the second quarter of this year, based on RCA’s Commercial Property Price Index. The advance was driven by strong appreciation in prices of apartment and CBD office properties, both of which have exceeded their prior 2007 peaks.
With the shortage of available inventory reported as the number one concern for NAR members, price growth accelerated in SCRE markets during the second quarter of 2015, with properties trading at 6.6 percent higher average prices compared with the same period in 2014. The average transaction price increased from $1.7 million in the first quarter 2015 to $2.0 million in the second quarter 2015.
[1] Smith and Ratiu (2015), "Small Commercial Real Estate Market," National Association of REALTORS®
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