Market Size, Drivers and Demand
According to: Jed Smith, Managing Director, Quantitative Research
The overall amount of commercial space available in the U.S. is estimated at 78.8 billion square feet located in 5.3 million buildings. This is the latest data from the Energy Information Administration. In addition, there are an estimated 15.3 million apartment units in buildings with 10 or more apartments.
Building sizes vary widely. There are an estimated 9,000 buildings that are larger than 500,000 square feet, and 3.8 million buildings with less than 10,000 square feet—of which 2.8 million are less than 5,000 square feet in size.
The major economic drivers for space demand are changes in employment and economic growth (GDP). Both drivers were negatively affected by the Great Recession, and recovery has been slow.
- The dollar sales volume for core commercial space (office, retail, apartments, and industrial) declined to $52 billion in 2009 after reaching a high of $428 billion in 2007. The good news is that in 2010 there has been a slight uptick in commercial demand, with an estimate approaching $70 billion in 2010.
- Commercial leasing demand has declined for most property types over the past two years. Multifamily has been the only resilient property type to weather the economic recession, with that segment of the commercial market registering positive net absorption. However, rents have declined across the board.
- Commercial real estate prices have also declined from their peak. Currently both rental and sales prices for Class A office building space are recovering, but the recovery of the rest of the market has been somewhat slower.
Beau Beery Comments: Gainesville, for the most part, has mimicked the national trend detailed above but differ in the percentage increases and decreases. Commercial leasing demand in Gainesville, Florida is certainly up from 2009 but still down from the 2007 and 2008 periods. Available office inventory has continued to increase in the market and rates have dropped. Available retail inventory has finally leveled off and rates have stabilized for the first time in 18 months. Multifamily occupancies in Gainesville have increased a fair amount since the beginning of the year, however it has been at the price of hefty rental rate adjustments and concessions.
As mentioned in a prior blog, a flight to Class A office space in Gainesville remains the preferred product as occupancy in that sector has increased. Class B and C properties continue to increase in vacancy as savvy tenants are taking advantage of the fallen Class A prices.
In all, it is clear we are in the recovery phase in all real estate sectors, though it is slower than any of us would like to see. Employment and availability of capital remain the key drivers to speeding up the recovery.