Magazine article Mortgage Banking

Small-Cap Rents Rise at Fastest Pace in Years

Magazine article Mortgage Banking

Small-Cap Rents Rise at Fastest Pace in Years

Article excerpt

Small-cap rents surged during the first quarter as small-property landlords benefited from extremely tight markets, according to Boxwood Means, Stamford, Connecticut.

Boxwood Means Principal Randy Fuchs said small-cap industrial properties saw the highest growth as rents jumped 1.6 percent during the first quarter and 6.4 percent year-over-year.

"That's the highest growth rates for these respective periods since at least 2007," he said. At a national average of $7.69 per square foot, nominal industrial rents now stand just 2.7 percent below their pre-recession peak.

Fuchs noted that Boxwood Means defines small-cap properties as those under $5 million, and it drew supply and rent data from CoStar, Washington, D.C.

Office rents rose 0.9 percent during the quarter and 2.3 percent year-over-year as the office sector responded to increasing office-producing jobs, Fuchs said. He called the recent movement noteworthy: "Over the past 41 quarters, there have been only three other periods that posted similar increases," he said.

Retail rents also performed well, Boxwood reported. They increased by 0.7 percent during the quarter--among the highest quarterly growth rates over the past 10 years--and 2.3 percent over the last year to $16.76 per square foot.

Though small-cap annualized retail rents increased at 2 percent or more for the last three quarters, they remain 8.1 percent below their pre-recession high, Fuchs said. By contrast, general retail properties saw national rents increase 3.5 percent over the past 12 months.

"It's notable that small-cap rent growth lags the level of rent appreciation in the general commercial real estate market and, moreover, that small commercial rents have yet to fully recover or exceed pre-recession rent levels as have the larger property markets," Fuchs said. …

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