Thursday, August 19, 2010

Commercial Real Estate: Highlights from the Quarterly Market Survey

Commercial Real Estate: Highlights from the Quarterly Market Survey
by George Ratiu, Research Economist

Every quarter, NAR Research produces The REALTORS® Commercial Real Estate Market Survey. This survey measures quarterly activity in commercial real estate markets and reflects data from commercial members of the Association. The survey is designed to provide members with an overview of their markets’ performance, sales and rental transactions, along with current economic challenges and future expectations. The survey questions are designed to capture the effects of the existing economic conditions on the commercial real estate business. Each quarter, participants respond to questions regarding the current demand for commercial properties, price, cap rates, rental concessions and other economic factors. Below we present highlights from the latest survey reflecting data from the first quarter of 2010.
There was mixed news for commercial market activity in the first quarter of 2010. More than half of commercial REALTORS® responding to the NAR survey indicated that they had completed a commercial sales transaction. The estimated average transaction value was $1.2 million.
But sales, prices, and rental rates declined from the previous quarter. Sales volume declined 6 percent in the first quarter compared with a year ago, and sales prices declined 16 percent in the fourth quarter on a year-over-year basis. Rental rates were down 10 percent. On a positive note, leasing activity rose three percent from the previous quarter. Still, the market seems to favor tenants, as concession levels moved up nine percent on a quarterly basis.
State Differences
Of course, some states in the country experienced different levels of sales activity. Nineteen states and the District of Columbia saw sales volume increase compared to the previous quarter, compared to 13 states which saw increases from a year ago. On a quarter to quarter basis, some even posted double-digit increases: Idaho (17%), the District of Columbia (50%), New Hampshire (45%), and South Carolina (28%).
On a quarter-to-quarter basis, sales prices were down in the majority of states. Kansas, Louisiana, Maine, Montana, North Dakota, Utah and Vermont saw no change in price. But looking at year-over-year change in price, two – New Mexico and Oklahoma experienced small price increases (5% and 1%, respectively). The smallest price declines on an annual basis were in Massachusetts and New Jersey.
Leasing and Rental Rates
There was some good news on the leasing front. Leasing activity was up in the majority of states compared to the previous quarter. Several states posted increases of 50 percent or more: Alabama (up 100%), Illinois (50%) and New Hampshire (55%). Other states experiencing double-digit increases in leasing activity were:
Idaho (42%)
New Mexico (10%)
North Dakota (25%)
Minnesota (10%)
Wisconsin (18%)
Iowa (23%)
Louisiana (10%)
Kentucky (10%)
North Carolina (19%)
Maine (20%)
District of the Columbia (20%)
Tenants looking for commercial space are still seeing the scales balanced more to their side. Rental rates declined in most states from the previous quarter. Only two – Alaska and and Georgia – registered small quarter to quarter increases.

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