Job Growth, Trade and Hurricanes Drive Commercial Real Estate
David Lereah, NAR’s chief economist, said it takes time for commercial real estate to respond to changes in the overall economy. “There is a well known lag effect in commercial real estate, with a strong rise in jobs over the last two years currently bearing fruit in terms of higher demand for commercial space, especially in the office sector,” he said. “In addition, increases in trade are benefiting industrial properties such as warehouse and distribution facilities.”
NAR President Thomas M. Stevens from Vienna, Va., explained other factors at play in commercial real estate sectors. “People displaced by hurricanes are having a large impact on the apartment market across many areas of the South,” said Stevens, senior vice president of NRT Inc. “Consumer spending is sustaining retail real estate, but that sector is seeing relatively modest growth and conditions vary widely.”
Condo conversion accounted for a big increase in multi-family transactions this year. “The overall flow of capital into commercial real estate is at an unprecedented level, with multifamily transactions accounting for about a third of the total,” he said.
Through the first nine months of 2005, a record of $188 billion in investment grade real estate traded hands, not counting transactions valued at less than $5 million. “These figures demonstrate the value of commercial real estate as part of a diversified investment strategy,” Stevens said.
To read a detailed breakdown of the four major commercial sectors, click here.