This quarter I wanted to highlight some interesting trends affecting commercial real estate (CRE) markets. While these trends stem from national metrics, they will ultimately affect our local markets and may offer valuable insight to investors, owner/users, developers and tenants who are considering acquisition, disposition, expansion or relocation decisions.
Nationally, over the last eight quarters, sales volume has been trending lower, while sale prices have been trending higher. The same pattern can be seen locally and can be partially attributed to the lack of new supply. The cost of new construction has increased much faster than the rents that support it, and as a result, planned projects are held back until the economics justify moving forward. The takeaway here, especially for tenants, is that now may be a good time to sign that new long term lease or move to that new building in order to take advantage of still relatively low rents.
Another national trend relates to the differentiation between large institutional-type properties, which are declining in sales volume, and smaller individual investor-type properties that are seeing increasing demand and greater sales volume. The never-ending “hunt for yield” is now leading investors to smaller tertiary markets located outside of the major metros, where returns are generally a 100 basis points or more higher. The takeaway here is for investors or owner/users considering a purchase. Demand is increasing locally, which should lead to further price increases, so now may be a strategically wise time to buy.
