Commercial real estate space is heavily concentrated in large buildings, but large buildings are a relatively small number of the overall stock of commercial buildings. In terms of inventory, commercial real estate markets are bifurcated, with the majority of buildings (81 percent) being relatively small (small cap CRE), while the bulk of commercial space (71 percent) is concentrated in larger buildings (large cap CRE). The bifurcation continues along transaction volumes as well, with deals at the higher end—$2.5 million and above—comprising a large share of investment sales, while transactions at the lower end make up a smaller piece of the pie.
Data are readily available for transactions in excess of $2.5 million from several sources, including Real Capital Analytics (RCA). However, in general, data for smaller transactions—many of which are handled by REALTORS®—are less widely available. NAR’s Commercial Real Estate Market Trends gathers market information for small cap CRE properties and transactions, mostly valued below $2.5 million.
Sales volume in large cap CRE markets posted a 14.0 percent year-over-year drop, totaling $105 billion during the second quarter of 2016, based on RCA data. Following a strong growth trend, sales at the upper end have declined for the past two quarters, as investors took a step back, buffeted by the global economic slowdown, capital markets’ volatility and diverging monetary policies across developed economies.
In REALTORS® markets, commercial sales maintained positive momentum, with rising investment volume. Sales of commercial properties during the second quarter rose 8.4 percent on a year-over-year basis, in the wake of an 8.5 percent increase during the first quarter.
Prices in large cap CRE markets rose by 2.9 percent during the second quarter of this year, based on partial data from RCA’s Commercial Property Price Index. The advance was driven by continued appreciation in prices of apartment and CBD office properties, both of which have exceeded their prior 2007 peaks.
In comparison to top-tier markets, price growth accelerated in small cap CRE markets during the second quarter of 2016, based on REALTORS®’ information. Commercial properties traded at 5.3 percent higher prices compared with the same period in 2015, following a 5.1 percent increase during the first quarter of this year. The average reported transaction price was $1.4 million during the period.
To access the latest Commercial Real Estate Market Trends report, visit: http://www.realtor.org/research-and-statistics/commercial-real-estate-market-survey.