The United States economy sputtered during the first quarter of 2016, as global economic activity throttled back and companies found financial markets’ volatility unsettling, according to Realtors.org recent Commericial Real Estate Outlook report. Real gross domestic product (GDP) rose at an annual rate of 0.5 percent, based on the first estimate from the Bureau of Economic Analysis. The report also indicated that the corporate outlook took a downward turn, with business investments dropping 5.9 percent on an annual basis in the first quarter.
Commercial real estate investments were also cut back. According to the Commercial Real Estate Outlook report, businesses cut back investments in equipment and commercial real estate to the tune of 8.6 percent and 10.6 percent, respectively. Investments in residential real estate — aided by a warmer winter — picked up, rising by 14.9 percent annual rate, while spending on intellectual property products — software, R&D — rose 1.7 percent.
Investments In Commercial Real Estate
Commercial space was also highlighted in the report and was cited to be heavily concentrated in large buildings. According to the report, large buildings are a relatively small number of the overall stock of commercial buildings. Approximately 72 percent of commercial buildings are less than 10,000 square feet in size, based on Energy Information Administration data. It was also indicated that an additional eight percent of commercial buildings are less than 17,000 square feet in size.The report highlighted that the majority of buildings (81 percent) are relatively small, but with the bulk of commercial space (71 percent) in the larger buildings.
For investors, CRE deals were indicated to be at the higher end. The deals ranged from $2.5 million and higher and were comprised of a large share of investment sales, and generally receive most of the press coverage. According to the report, the smaller commercial transactions tended to be obscured given their size. It was also noted that the smaller properties were able to provide commercial space such as shopping centers, small offices, supermarkets, etc. that fall into the average American consumers on a day to day basis.
Lastly, the report also highlighted that commercial transactions rate fell within the first quarter of 2016, following an upbeat 2015. The overall volume of commercial sales in LCRE markets amounted to $111 billion. This was a 20 percent year-over-year decrease, according to Real Capital Analytics (RCA). The first quarter data saw yearly declines in both individual and portfolio transactions, of 11 percent and 24 percent, according to Realtors.org report.