Commercial Leases for Small Spaces Capture 75% of REALTOR® Markets

The economy proved resilient during 2013, despite “sequestration”, government shutdown, regulatory changes and other impacts. Based on BEA’s preliminary estimates, gross domestic product advanced at a 1.9 percent annual rate in 2013, supported by a cautiously optimistic consumer and hedging businesses. The third quarter provided the largest boost, with growth of 4.1 percent, followed by a surprisingly robust fourth quarter, which recorded 3.2 percent annual growth rate.

Commercial leasing in REALTOR® markets posted a positive trend in 2013. However, the pace of activity slowed toward the end of the year. Fourth quarter leasing volume rose 0.4 percent from the prior quarter, pointing to a moderation in demand.

On the supply side, new construction showed a similar moderation toward the tail end of the year, increasing 2.0 percent over the third quarter. Vacancies declined for all property types, except retail properties. Office vacancies declined 2 basis points, to 17.6 percent, while industrial availability declined 5 basis points, to 14.6 percent. Multifamily vacancy reached 6.6 percent, a 7 basis point slide. Retail availability rose 4 basis points to 16.1 percent.

With sliding vacancies, landlords find fewer reasons to provide rent concessions. Rent concessions declined 4.0 percent on a quarterly basis. Rental rates were virtually flat, advancing 0.3 percent during the fourth quarter. In terms of space requirements, tenant demand remained strongest in the 5,000 square feet and below, accounting for 75.0 percent of leased properties. At a more granular level, demand for space under 2,500 feet also increased, driving 43.0 percent of lease agreements. Lease terms remained steady, with 36-month and 60-month leases capturing the bulk of the market.

Commercial REALTORS® rated the direction of commercial business opportunities 5.0 percent higher compared with the third quarter.

For the full report along with respondent comments, please visit

Note: Vacancy rate data in this report comes from a national survey of REALTORS® who identify themselves as commercial practitioners. The data does not match the historical data used to generate NAR’s Commercial Real Estate Outlook, which is sourced from Reis, Inc.

George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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