CBRE: Commercial Real Estate Demand ‘Solid’

Commercial real estate showed healthy demand across property types during the fourth quarter, reported CBRE Group, Los Angeles.

“U.S. commercial real estate had another solid quarter with vacancy rates declining for the office, industrial and retail sectors due to steady absorption and relatively limited supply,” said CBRE Americas Chief Economist Jeffrey Havsy.

Havsy noted that U.S. CRE remains in a “goldilocks” state with both demand and supply neither too hot nor too cold. “This slow, stable improvement is extremely healthy for the sector, but is at a pace that is sustainable for 2016,” he said.

Meanwhile, Moody’s and Real Capital Analytics, New York, said property prices increased by 14.7 percent year-over-year. The Moody’s/RCA Commercial Property Price Index found that central business district office prices rose 26 percent over the last 12 months, outpacing the next-best performing sector, retail, by more than 10 percentage points. Industrial sector property prices rose 9 percent over the past 12 months, the only core commercial sector not to experience a double-digit gain during that period.

Havsy said the office vacancy rate fell 80 basis points during 2015 to end the year at 13.2 percent. “Economic fundamentals remain strong and point to continued U.S. office expansion in 2016, supported by a strong domestic job market,” he said.

The industrial sector’s low fourth-quarter availability rate–just 9.4 percent–indicated full recovery in this sector, which moved into expansionary territory for this cycle, CBRE noted.

“The majority of [industrial] markets continue to improve and a few are even experiencing lower levels of available space than has been seen in decades,” Havsy said. “Such constraints will continue to provide upward pressure on rent levels, as demand-side fundamentals remain quite favorable for industrial users.”

Havsy called the retail sector well positioned for growth as well. “With lower gas prices, easier access to credit and a rapidly improving labor market, consumer spending should continue to grow and the continuing decline in availability should translate into retail rent growth in the coming quarters,” he said.

The Federal Reserve’s December decision to raise interest rates most likely will not affect capital flows into commercial real estate, Havsy said: “Recent changes in the Foreign Investment in Real Property Tax Act and the extension of the EB-5 program should help to increase the flow of foreign capital into U.S. commercial real estate, while strong economic fundamentals will maintain asset valuations despite rising interest rates.”