Report Cites ‘Consistent’ CRE Construction
First quarter commercial real estate completions were consistent with historical first quarter numbers and emerging quarterly trends, reported Reis, New York.
Multifamily completions grew slightly, by just 41,560 units year-over-year, while the retail sector added 712,000 square feet of new space, the lowest completion figure since 2000. Office sector deliveries grew more, rising 8 percent year-over-year to 11.2 million square feet, Reis Economist/Data Scientist Hsiao-shan Yang and Economist Thomas LaSalvia said in a special report.
“Fundamentally the strongest commercial real estate sector of the three, apartment inventory growth remains steady,” Yang and LaSalvia said. Though the 41,560-unit delivery figure represented a significant decline from the previous quarter, it is consistent with typically modest first quarter outcomes. “The combination of the first quarter result and our most recent surveys implies a high probability we will see 2018 completions in line with the final 2017 figure of 220,000 units,” the report said. “Given this, we expect further pressure to be placed on the national vacancy average.”
The report termed the office sector completion increases modest in a historical context, “but in a seasonal context and in relation to recent quarters, this result will not assuage the concerns of property owners dealing with a stagnant office sector,” it said.
The office vacancy rate increased 10 basis points to finish the quarter at 16.5 percent. Reis attributed the vacancy increase to “paltry” absorption numbers of just 6.1 million square feet–about half the inventory gain.
The volatile nature of retail completions continued in the first quarter, the report said. The first quarter’s “historically slight” 712,000 square foot gain in shopping center space follows an overall downward activity trend for this sector. “In fact, only 15 metros [of 80 surveyed] registered retail inventory gains and none of those had what would be considered ‘significant’ increases,” it said
The historically modest gains come at a good time given low demand for retail space, the report noted.
“Seasonal factors are important with regard to completion activity, and 2018 is not an outlier in that respect,” Yang and LaSalvia said. “The apartment and retail sector’s first quarter inventory gains, while small in reference to recent quarter activity, are not complete outliers with respect to what we have recorded in the last few years of this economic expansion…Office completions, while still modest from a historical perspective, will be interesting to keep an eye on in the second quarter and throughout the year as quarter-to-quarter gains from the fourth quarter to the first quarter are somewhat unique.”
