October 2019 Commercial Real Estate Market Trends and Outlook

The 2019 Q3 Commercial Real Estate Trends & Outlook Report discusses the latest development in the small commercial market (transactions that are typically less than $2.5 million) based on a survey of commercial REALTORS® and economic data.

According to respondents, commercial transactions are still modestly up compared to a year ago: development (4%), sales (3%), and leasing (2%).

Line graph: NCREIF Transactions-based Price Index, Q1 1994 to Q3 2019

In both large and small commercial markets, commercial prices continued to ratchet up as of 2019Q2, with price gains from one year ago, based on price indices reported by the National Council of Real Estate Investment Fiduciaries (8%), Federal Reserve Board (4%), and Green Street Advisors Price Index(2%).

Line graph: Commercial Property Price Indices, Q1 2000 to Q3 2019

The going-in cap rates reported by respondents indicate cap rates are still trending downwards, with the lowest going-in cap rates in multifamily (5.9%) and industrial- warehouse (6.5%). Commercial activity for retail malls remains depressed; as of August 2019, there were 69,300 fewer payroll jobs in the retail industry compared to one year ago.

Table: Commercial Cap Rates in Q3 2019

Multi-family properties continue to be attractive to developers and investors given the tight rental conditions: the national rental vacancy rate stood at 6.8% in 2019 Q2,well below the 9% rate in 2012. The sustained growth in e-commerce sales continues to buoy the demand industrial –warehouse properties.

Line graph: REALTORS® Commercial Vacancy Rates by Property Type, 2010 to Q3 2019

Amid concerns about an economic slowdown, 48% of respondents reported they expect business conditions to improve in the next 12 months, a lower fraction compared to 53% in the 2019 Q2 survey.

Respondents identified several market opportunities, such as the construction of affordable housing, industrial-flex office, repurposing and rehabilitation of closed retail malls, and senior housing, among others.

Download the full report


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