The real estate market is a good indicator of economic activity in general, but one area of particular interest to business owners is the commercial real estate market. The frequency at which people buy and sale commercial properties, open businesses, etc. are all portends of how people think the economy will do in the near future. With that in mind, a recent report from the National Association of Realtors® gives good hope for people in the CRE market and business owners in general. Commercial real estate activity saw dramatic increases during 2014 in several key metrics.
The 2015 National Association of Realtors® Commercial Member Profile is the latest in an annual report series on the members of NAR who conduct all or part of their business in commercial sales, leasing, brokerage and development for land, office and industrial space, multifamily and retail buildings, as well as property management. There are approximately 350,000 commercial real estate professionals are members of NAR, making it the largest commercial organization in the industry. The annual report was based on the surveys from nearly 2,000 members involved in CRE markets.
“After years of slow recovery, the commercial real estate market has shown meaningful growth and our members are seeing significant improvements in their business activity,” said NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark. “Realtors® who practice commercial real estate help build and revitalize communities by facilitating investment in commercial properties that support millions of jobs nationwide. There is every indication that continued improvement to commercial markets with help stimulate economic growth for the rest of the country.”
The improving CRE market has benefited workers in the industry by raising average annual salaries. There are a lot of job types involved in the CRE market, but when lumped together, the average salaries of CRE workers grew over 30 percent in just one year, According to the data reported by NAR members, the median gross annual income of commercial members, which has increased steadily for the past five years, was $126,900 in 2014, an increase from $96,200 in 2013.
To prove that it’s the CRE activity at the heart of the improved salaries, two thirds (66%) of the CRE members of NAR said that more than half of their income came from CRE related work in 2014. Also members are reporting more transactions and fewer are going through the entire year without a transaction.
Commercial members completed a median of 11 sales transactions in 2014, up from last year’s median of eight. Only about one in 20 (6%) reported no sales transactions, a significant decline from 2013 when about 1 in 10 (9%) reported no sales transactions.
The report also showed an impressive increase median sales value for the members who had sales, which rose by about 14 percent. The 2014 median sales transaction volume for members who had sales transaction was $2,916,700, compared to $2,554,700 in 2013.
About a third (32%) of commercial members were involved in international transactions in 2014, and they too saw their markets improving. According to the report, 18 percent saw an increase in international clients and only 1 percent had a decrease.
Applications for this Research
The research is a great news for investors, real estate agents, property owners, brokers and others in the CRE market. Though NAR’s research only used NAR members, their responses provide good insights into the general health of the CRE market. As the report suggests, the CRE market is doing good and getting better.
If there’s any takeaway for people in the CRE industry is that the time is now to get back into the CRE market and to put your best foot forward. This means, sprucing up buildings, updating offering memos with better economic prospects, leasing specials and possibly partnering with other brokers to increase the reach of listings.
Investors can also use this opportunity to improve their portfolio of commercial properties. True, prices won’t be as low as they were during the economic recession, but that was because it was a time when everyone was selling and no one was buying. Even if prices are a little higher now, buying good commercial properties at a fair market value is always a good investment, because they will increase in value over the long run. There are even so lower-priced properties on the market where investors can make a nice profit by improving on properties that are getting passed up because others don’t want to put in the effort. Steady improvement in the consumer confidence index makes these kinds of investments more prudent.
Besides its usefulness to investors and people in the commercial real estate market, positive CRE activity affects, usually beneficially, everyday business owners. For example, if a new tenant moves into shopping center, the other businesses will benefit from the increased foot traffic (so long as they aren’t direct competitors). Business owners can even try to do cross promotions with new tenants to maximize the benefit of the new visitors to the shopping center.
Another way business owners can take advantage of this upswing in CRE activity is to open a new store or move to a better location. As businesses move around, it gives property owners a chance to improve their properties and look for new tenants. So it’s worth it for a business owner that may consider moving to reexamine properties that were unavailable or just not quite right in the past.
This report from NAR is the latest in a growing body of evidence that shows the CRE market is improving. For more recent news on the subject, read this article about a report on the CRE market from Auction.com.