Magazine article Mortgage Banking

Commercial Real Estate Market Demand Growing

Magazine article Mortgage Banking

Commercial Real Estate Market Demand Growing

Article excerpt

ACCORDING TO THE CHICAGO-BASED NATIONAL Association of Realtors' (NAR's) Commercial Real Estate Quarterly, growth in the U.S. economy and a rise in exports will raise demand for commercial real estate space over the next two years, with increases in various commercial sectors already seen in 2004.

David Lereah, NAR's chief economist, said the commercial real estate market is responding to improvements in the overall economy. "New jobs are filling office and industrial space, and vacancies will generally decline in the commercial real estate market," he said. "A silver lining to the recent slide of the U.S. dollar on foreign currency markets is an expected boost to U.S. exports that could also stimulate foreign purchase of U.S. commercial property."

Changing currency values have numerous effects, according to Lereah. "On one hand, the higher cost of foreign products will rein in some consumer spending. On the other, rising exports will help the economy to grow in 2005, which will create new jobs," he said. Lereah predicts the gross domestic product (GDP) will grow 4 percent in 2005, leading to the creation of 2.5 million to 3 million new jobs.

The growth in federal budget deficits is the primary factor in the dollar's decline. "Even with the expected benefit for exports, high budget deficits do raise a yellow flag," Lereah said. "Long term, if the deficit becomes large enough, the government would compete with the private sector for available funds, and that would cause interest rates to rise. Too much of a rate increase would be detrimental for the U.S. economy, but we do not see that occurring in the foreseeable future--the dollar should improve, and right now we're in pretty good shape."

NAR President Al Mansell said investment returns are showing a positive performance in all of the commercial real estate sectors. "One sign of a healthy commercial market is that many of the largest pension funds have started to increase the share of their investment in this asset class," he said. "That underscores the importance of real estate in a diversified portfolio."

The NAR forecast for four major commercial sectors is based on analysis of data in the 57 metro areas tracked, including the office, retail, industrial and multifamily markets. The forecast was produced with data provided by Torto Wheaton Research, Boston, and Real Capital Analytics, New York.

Net absorption of office space, which includes leasing of new space coming on the market as well as space in existing properties, is performing exceptionally well, according to NAR. …

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