Tyler Daniels Blog

Commercial Real Estate in the U.S.

Posted: October 10, 2017 by Rebekah Holten

People frequently ask- what is the state of Commercial Real Estate in the U.S?  We have had a nice long run, but will the streak keep going or come crashing down again, as it did in 2008?  The good news is the job growth has been solid for the past 4 years.  On average this year, there have been 180,000 jobs created a month and unemployment has come down significantly (http://crepodcasts.com/americas-commercial-real-estate-show-with-michael-bull/).  With more job opportunities, there are more people coming back into the work force creating an ever-increasing need for Commercial space.  According to Brian Bailey, the Federal Reserve's real estate guru, there will continue to be modest growth in the commercial real estate market for the foreseeable future.  

So what about specific commercial spaces?  How are multifamily complexes doing in comparison with retail?  There are a significant number of multifamily complexes coming online, currently under construction. This is great for the wealthy, as most that are being built are geared towards the luxury lifestyle versus the workforce and affordable living households.  The demand is high for affordable housing and unfortunately the demand is lower for luxury apartments because the the supply is so high. The concept of supply-and-demand would dictate higher prices under this scenario, and that is what we are seeing. 

What about office and industrial spaces?  This is picking back up, however we are having an issue with HOW we are using the space.  There are many industrial buildings under construction, but the markets seem to be absorbing it well.  Office spaces have taken a bit longer since the recession to come around because there has been an increase in construction costs and inputs, but that is also coming back.

Retail. Retail differs in the various parts of the United States.  In some areas the amount of retail spaces is very dense, but it is doing well because of the density of the population is also high.  This is the case in many cities in the U.S.  However, in the suburbs there is too much retail space and not enough businesses to occupy them.  This could be due to the increase in e-commerce - commercial transactions conducted electronically on the internet.  As the consumer desires to do everything from home, retailers have had to adjust by making their online presence more publicized and sometimes even getting rid of the actual space.

All of this being said, the overall growth rate is positive.  Traditional retail
excluding food, is up 2% to 3% but we are becoming much more efficient.  This results in alternative use for the space which is making us less likely to need all of the retail space, therefore putting pressure on the existing retail space.  The United States has 24 square feet of retail space per person.  To give you a comparison, Canada has 15 sq. ft. per person, Australia has 10 sq. ft., Western Europe has 5-7 sq. ft., and China has just 1 sq. ft. of retail space per citizen!  Even though the amount of sales of retail space is growing, it is being cut short by E-commerce and an excess amount of space.  Overall, home and commercial values are increasing as is the stock market,unemployment is up, and this is resulting in discretionary income increasing.  People are going to want to spend more money which will be good for retailing!

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