Commercial Real Estate Outlook

“Commercial space is heavily concentrated in large buildings, but large buildings are a relatively small number of the overall stock of commercial buildings. Based on Energy Information Administration data approximately 72 percent of commercial buildings are less than 10,000 square feet in size.1 An additional eight percent of commercial buildings are less than 17,000 square feet in size. In short, the commercial real estate market is bifurcated, with the majority of buildings (81 percent) relatively small (SCRE), but with the bulk of commercial space (71 percent) in the larger buildings (LCRE).

Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. CRE deals at the higher end—$2.5 million and above—comprise a large share of investment sales, and generally receive most of the press coverage. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space that the average American encounters on a daily basis—e.g. strip shopping centers, warehouses, small offices, supermarkets, etc. These are the types of buildings that are important in local communities, and REALTORS® are active in serving these markets.

Large Commercial Real Estate Markets

Commercial transactions have slowed in the third quarter of the year, after strong gains at the onset of 2015. The volume of commercial sales in LCRE markets totaled $115 billion, a 3.0 percent year-over-year increase, according to Real Capital Analytics (RCA). The third quarter data marked a noticeable slowdown in deal momentum for LCRE markets, with September’s sales volume dropping 10 percent year-over-year. In comparison, sales volume advanced 49 percent in the first quarter and 23 percent in the second quarter.
Whereas portfolio and entity level transactions dominated the landscape in the first half of the year, large deals comprised a much-smaller 30 percent of total in the third quarter. Given their importance in the current market, their absence in the latest quarter underlines the general decline in total LCRE transactions.”