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U. S. Commercial Real Estate Market Intelligence Overview: NAI Global 2008 Market Report
Following is an overview of NAI Global’s recently published 2008 Commercial Real Estate Global Market Report. This 148-page report, compiled by NAI Global members around the world, is a unique review and summary of global commercial real estate activities during 2007, and provides comprehensive market data as well as geographical area and economic overviews for 213 primary, secondary and tertiary property markets worldwide.This report provides a wealth of global commercial real estate market intelligence that will be used by corporations, institutions, developers, real estate investors, lenders, property owners and real estate brokers throughout the U.S.NAI Global President and CEO, Jeffrey M. Finn, said “The Global Market Report reflects that commercial property markets worldwide enjoyed a strong year in 2007 with slightly declining vacancy rates, rising rents and record sale prices. However, the outlook for 2008 is clouded by uncertainty following the mid-year emergence of the sub-prime debt problems, volatile credit markets and record high oil prices.”
“Fears of a slowing U.S. economy and the credit crunch are clearly having an effect on investment real estate markets, even though commercial real estate fundamentals remain strong. However, we believe the slowdown in activity is only temporary as the credit markets sort themselves out and a new pricing equilibrium is established. The U.S. economy remains fundamentally strong and supply is tight, especially in resurgent downtown areas. The U.S. story is counterbalanced by a dynamic global landscape with vast new markets continuing to grow at a rapid pace,” Finn said.
Finn noted that the state of the current market is causing stateside investors to be cautious, which could open the door for international investors to consider American investments. “Opportunities will emerge from the current volatility. The credit crunch is leaving many domestic investors on the sidelines for the time being, but a weak U. S. dollar and the relative returns to other global real estate markets make U. S. real estate quite attractive to offshore investors,” he said.
In 2007, U.S. markets reported generally tightening vacancies and modest increases in rents. With any lingering remnants from the dot-com bust erased in 2006, the supply side is remarkably stable, as evidenced by the modest drop in the vacancy rate for Downtown Class A office space from 9.85% in 2006 to 9.55% in 2007. The 16.4% increase in the national average rental rate for Downtown Class A space translates into sticker shock for tenants with leases expiring in resurgent downtown areas such as New York City, Boston, San Francisco and Los Angeles, where supply is scarce and rents have risen more dramatically.Suburban markets nationwide mirrored the vacancy trend without the velocity of rental rate growth. The national vacancy rate for Suburban Class A space declined slightly from 13.16% in 2006 to 12.87% in 2007, while rental rates increased 5.6% from $24.49 in 2006 to $25.87 in 2007.
Market conditions in the industrial sector also improved, with the biggest gains recorded in the bulk warehouse sector. Demand for bulk warehouse space has been strong in prior years, but not strong enough to keep pace with new supply. The national average vacancy rate for bulk warehouse space declined to 9.09% in 2007, its lowest level in over five years, after increasing four of the five previous years.
Retail vacancy rates declined modestly in all categories and are at their lowest levels in over five years. The most significant growth in rental rates occurred in regional malls, where the national average rose from $44.97 in 2006 to $46.26 in 2007. The rental rate for downtown retail climbed from $47.70 in 2006 to $48.09 in 2007.
“The outlook for 2008 calls for continued stability with moderate growth in occupancy and rental rates,” Finn said. “Tenants in the most supply-constrained cities may have to consider other alternatives, such as splitting headquarters and back-office functions or relocating to lower-cost space in the suburbs.”
About NAI Global:
NAI Global is one of the leading commercial real estate services providers worldwide. Headquartered in Princeton, New Jersey, NAI Global manages a network of 8,000 commercial real estate professionals and 375 offices in over 55 countries, and completes over $45 billion in annual transaction volume. Since 1978, NAI Global clients have built their businesses on the power of NAI’s expanding network. NAI Global’s extensive services include corporate real estate services, brokerage and leasing, property and facilities management, real estate investment and capital market services, due diligence, global supply chain consulting and related advisory services. To learn more, visit www.naiglobal.com.