Professional Documents
Culture Documents
CONTENTS
1 | Introduction
2 | Economic Overview..
13
4 | Survey Highlights...
19
5 | Survey Results:
21
Market Environment..
22
Lending Environment.
24
Appraisals..
27
Methodology
29
INTRODUCTION
INTRODUCTION
GEORGE RATIU
Director, Quantitative &
Commercial Research
gratiu@realtors.org
Commercial real estate (CRE) notched another year of growth in 2015, favored by
continued macroeconomic growth and broadening capital markets, according to the
Expectations & Market Realities in Real Estate 2016: Navigating through the
Crosscurrents report, released by Deloitte, the National Association of REALTORS,
and Situs RERC. While global economies decelerated, leading to volatility in financial
indices, U.S. gross domestic product rose, employment growth accelerated toward
the tail end of the year, and housing prices reached new heights. In addition, the
Federal Reserve signaled a shift in its monetary policy by raising its target funds rate,
as core inflation hovered around its target of 2.0 percent.
Commercial vacancy rates declined for the core property types. Availability is
expected to continue contracting for office, industrial and retail properties in 2016.
Vacancies for apartments are estimated to rise, due to gains in supply. Commercial
rents have risen across the board, and are projected to advance this year in the 2.5
percent to 4.0 percent range.
CRE sales volume continued its positive trend in 2015, with $534 billion in closed
transactions, compared with $432 billion in 2014, based on data from Real Capital
Analytics (RCA). Most of the transactions reported by RCA are based on data
aggregated at the top end of the marketabove $2.5 million.
In contrast to the large commercial transactions reported by RCA, commercial
REALTORS managed transactions averaging $1.8 million per deal, frequently
located in secondary and tertiary markets, and focused on small businesses and
entrepreneurs. The 2016 Commercial Real Estate Lending Trends shines the
spotlight on this significant segment of the economya segment which tends to be
somewhat obscured by reports on Class A trophy commercial properties.
ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Gross Domestic Product
Looking at macroeconomic performance through
the lens of the Gross Domestic Product (GDP), U.S.
economic activity grew at a moderately positive 2.4
percent in 2015, on par with the prior year. This
marks the seventh year of post-recession economic
growth. However, with the fourth quarters growth
notching a mere 1.4 percent gain, it also marks
another year of subpar performance, considering
that long-term GDP growth has averaged 3.0
percent. Nonetheless, in the context of the global
economic landscapeespecially as illustrated by
recent market gyrationsthe U.S. economy
continued to be a comparatively bright spot.
Gross domestic product had a slow start in the first
quarter of 2015, with a slight 0.6 percent increase.
Economic activity picked up in the second quarter,
as GDP rose at an annual rate of 3.9 percent.
However, financial markets gyrationspredicated
on the global slowdownled to lost momentum
and the third quarter posted an increase of 2.0
percent.
Equipment
Intellectual Property
20
10
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
-10
2002
2001
-20
2
-30
1
2016
2017
-1
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-2
-3
-4
Source: BEA
2014
2013
2012
2011
2010
-200
-300
Consumer Spending
15000
10000
-400
-500
5000
-600
-700
Source: BEA
2015
Source: BEA
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2001
2003
-800
-900
GDP
2002
2009
2008
2007
2006
2005
2004
2003
2002
-100
20000
2001
2500
2000
1500
1000
500
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
-500
2001
0
2000
10
8
6
4
2
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Source: NAR
10
65
64
400
63
200
-400
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
2015 - Mar
2015 - Oct
-200
2001 - Jan
2001 - Nov
2002 - Sep
2003 - Jul
2004 - May
2005 - Mar
2006 - Jan
2006 - Nov
2007 - Sep
2008 - Jul
2009 - May
2010 - Mar
2011 - Jan
2011 - Nov
2012 - Sep
2013 - Jul
2014 - May
2015 - Mar
2016 - Jan
62
0
Source: BLS
-600
-800
-1000
Source: BLS
11
7
6
5
4
3
2
1
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Source: Federal Reserve Board
2015
2016
2017
2.4
2.4
1.6
2.7
1.9
1.6
2.1
0.2
1.4
1.8
1.9
3.2
Level
Consumer Confidence
87
98
95
100
Percent
Unemployment
Fed Funds Rate
3-Month T-bill Rate
Corporate Aaa Bond Yield
10-Year Govt Bond
30-Year Govt Bond
6.2
0.1
0.1
4.2
2.5
3.3
5.3
0.1
0.1
3.9
2.1
2.8
4.8
0.8
0.6
4.2
2.1
3.1
4.7
1.7
1.6
4.8
2.8
3.8
12
13
14
Sales Volume
CPPI
$150
60
40
$50
20
0
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4
$-
Prices
2015.Q4
2015.Q2
2014.Q4
2014.Q2
2013.Q4
2013.Q2
2012.Q4
2012.Q2
2011.Q4
2011.Q2
2010.Q4
2010.Q2
30%
20%
10%
0%
-10%
-20%
140
-30%
120 -40%
100 -50%
80
$100
Sales Volume
2009.Q4
$200
2009.Q2
Billions
2008.Q4
Source: NAR
15
U.S. Chartered
Depository Institutions
Private Equity
REITs
Pension Funds
Life Insurance
Companies
Corporations
Foreign Banking
Offices in U.S.
Foreign Investors
Other
16
90%
Small Business
Administration
REITs
80%
Regional Banks
70%
Public Cos.
90%
80%
Pvt/Other
70%
Reg'l/Local Bank
60%
Private Investors
60%
Nat'l Bank
50%
Other
50%
Int'l Bank
40%
Insurance
Local/Comm. Banks
30%
Gov't Agency
30%
20%
Financial
20%
CMBS
0%
International banks
10%
Credit Unions
2016
2015
2014
2013
0%
Source: Real Capital Analytics
2012
2011
10%
National Banks
40%
CMBS
Source: NAR
17
80%
Global economic
uncertainty
70%
U.S. Economic
uncertainty
60%
Inability of banks to
dispose of distressed
assets
New/proposed US
legislative and
regulatory initiatives
Regulatory
uncertainty for
financial institutions
Slow-down in
pooling/packaging of
CMBS
Reduced NOI,
property values, and
equity
50%
40%
30%
Yes
41%
No
59%
20%
10%
0%
2012 2013 2014 2015 2016
Source: NAR
18
SURVEY HIGHLIGHTS
19
20
SURVEY RESULTS
21
SURVEY RESULTS
Exhibit 5.1: Closed Sales During the Year
Market Environment
During 2015, 61.0 percent of REALTORS who
responded to the survey completed a commercial
real estate sale. Respondents reported that they
closed an average of eight sale transactions during
the year. The majority of REALTORS94.0
percentreported average transaction values
below $5.0 million.
Yes
No
N/A
100%
80%
60%
40%
20%
0%
2011
2012
2013
2014
2015
2016
5%
10%
15%
20%
Office: CBD
Office: Suburban
Industrial: Warehouse
REALTORS reported that 17.0 percent of
Industrial: Flex
transactions involved international clients or
investors. The measure has been consistent over the
Multi-family
past five years.
Retail: Strip Center
Retail: Mall
We are hopeful for an above normal CRE in the Phoenix
Metro area with large numbers of small business
openings already showing for 2016. Availability of
additional lending capital would increase activity as we
push into our next expansion of single family housing
bringing increased CRE activity into the expanding
areas.
- Arizona
My transactions are never in California as the cap rates
are too low in my state... my investors go out of state.
- California
Rents are high so it's understandable that Lenders want
50% down if the rental market changes they could end
up with owners struggling to repay the debt.
- California
Land
Hotel
Other, please specify
No
100%
80%
60%
40%
20%
0%
2012
2013
2014
2015
2016
22
100%
90%
50%
I see that buyers ask for a higher cap rate than the
market will provide.
- Montana
40%
30%
No Change
20%
10%
Increased 5% - 9%
0%
Increased 1% - 4%
80%
70%
60%
Exhibit 5.5: Expectations for Cap Rate Movement in Next 2-3 Years
0%
20%
40%
60%
80%
100%
Office CBD
Office Suburban
Industrial Distribution/Warehouse
Industrial Flex
Retail: Mall
Retail: Neighborhood Shopping Center
Retail: Strip Center
Apartment: Market-Oriented
Apartment: Affordable
Apartment: Student Housing
Hotel
Land
23
Eased
Significantly
Other
100% Cash
80%
50%
70%
55%
60%
60%
50%
65%
40%
70%
30%
75%
20%
80%
10%
85%
90%
0%
24
100%
80%
60%
N/A
40%
No
20%
Yes
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Other
Appraisal/valuation
Loan underwriting/lender
requirements
Financing availability
2016
100%
100%
80%
80%
60%
No
40%
Yes
40%
20%
20%
0%
0%
2011
2012
2013
2014
2015
Appraisal/valuation
60%
Loan underwriting/lender
requirements
Financing availability
2016
25
N/A
40%
No
20%
Yes
0%
8%
21%
6%
56%
9%
26
No
40%
Yes
20%
0%
2015
2016
Other
100%
90%
80%
60%
Environmental conditions
(air quality, contamination)
Zoning
50%
Location obsolescence
70%
40%
Economic obsolescence
30%
20%
10%
0%
2015
2016
80%
60%
No
40%
Yes
20%
0%
2015
2016
27
100%
80%
60%
Never
40%
Rarely
Sometimes
20%
Always
0%
2015
2016
60%
Never
40%
Rarely
Sometimes
20%
Always
0%
2015
2016
No
Yes
2015
2016
28
29
The National Association of REALTORS, The Voice for Real Estate, is Americas
largest trade association, representing over 1.1 million members, including NARs
institutes, societies and councils, involved in all aspects of the real estate industry.
NAR membership includes brokers, salespeople, property managers, appraisers,
counselors and others engaged in both residential and commercial real estate. The
term REALTOR is a registered collective membership mark that identifies a real
estate professional who is a member of the National Association of REALTORS and
subscribes to its strict Code of Ethics. Working for America's property owners, the
National Association provides a facility for professional development, research and
exchange of information among its members and to the public and government for
the purpose of preserving the free enterprise system and the right to own real
property.
NATIONAL ASSOCIATION OF REALTORS
RESEARCH DIVISION
The Mission of the National Association of REALTORS Research Division is to collect
and disseminate timely, accurate and comprehensive real estate data and to conduct
economic analysis in order to inform and engage members, consumers, and policy
makers and the media in a professional and accessible manner.
To find out about other products from NARs Research Division, visit
www.REALTOR.org/research-and-statistics.
30