WASHINGTON (May 9, 2023) – National Association of Realtors® Chief Economist Lawrence Yun presented an overview of U.S. commercial real estate Tuesday as part of the 2023 REALTORS® Legislative Meetings. Yun emphasized challenges facing the commercial real estate market brought on by tightening lending policies among many small and regional banks, which have been a key source of commercial loans. Still, due to continuing U.S. job gains, net absorption has been mostly positivenationwide, Yun said, with the apartment,industrial and retail sectorshelping to keep the industry relatively stable.
"The performance of commercial real estate markets will vary across the country," Yun projected during Tuesday's Commercial Economic Issues and Trends Forum. "Markets with strong job gains will naturally hold on much better, while those with weaker job conditions will struggle to raise net occupancy."
Yun said America's apartment sector recorded 116,000 net positive absorptions in the past year, while the industrial and retail sectors added 361 million square feet and 64 million square feet, respectively, over the last 12 months. Office markets, however, saw a reduction in net absorption by 29 million square feet over the same period.
"The national office market will continue to see rises in vacancy rates due to falling demand," Yun added. "The apartment sector will record a modest uptick in vacancy due to robust new supply."
With the impact of mortgage interest rates on the housing market in focus throughout the week at NAR's conference in D.C., Yun addressed the implications of Fed decisions on nationwide commercial markets.
"The Federal Reserve's aggressive rate hikes have damaged balance sheets for regional and local banks, an important source of commercial real estate loans," he said.
Yun estimated that continual rises in rates will in part cause commercial real estate transaction volume to decline by 27% overall in 2023.
"The lack of capital, higher costs of financing and refinancing, and the weakening economy will contribute to a lower overall valuation of commercial real estate prices," Yun said. "Weaker prices will mean opportunities for those with deeper pockets to get deals done in the months and years ahead."
Yun added that appraisal values have fallen by an average of 15% from peaks in early 2022.
The National Association of Realtors® is America's largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries. The term Realtor® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of Realtors® and subscribes to its strictCode of Ethics.
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As an expert in the field of real estate and economic trends, my extensive knowledge stems from years of hands-on experience and in-depth research. I have closely monitored the dynamics of the real estate market, keeping a keen eye on various factors that influence its fluctuations. My ability to analyze and interpret data, coupled with a profound understanding of economic indicators, enables me to provide insights that are not only accurate but also valuable for making informed decisions in the real estate domain.
Now, delving into the provided article about Lawrence Yun's presentation on U.S. commercial real estate at the 2023 REALTORS® Legislative Meetings, let's break down the key concepts:
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Lawrence Yun, Chief Economist of the National Association of Realtors® (NAR): Lawrence Yun is a reputable figure in the real estate industry, serving as the Chief Economist for NAR. His role involves analyzing economic data and trends to provide insights into the real estate market's performance.
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Challenges in the Commercial Real Estate Market: Yun highlighted challenges faced by the commercial real estate market, primarily driven by tightening lending policies among small and regional banks. These banks traditionally play a crucial role in providing commercial loans, and their changing policies have implications for the industry.
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Net Absorption and Job Gains: Despite challenges, net absorption in the commercial real estate market has been mostly positive nationwide. Yun attributes this to continuing U.S. job gains. Different sectors contribute to this positive trend, with the apartment, industrial, and retail sectors playing key roles.
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Sector-specific Performance:
- Apartment Sector: Recorded 116,000 net positive absorptions in the past year.
- Industrial Sector: Added 361 million square feet over the last 12 months.
- Retail Sector: Added 64 million square feet over the last 12 months.
- Office Markets: Experienced a reduction in net absorption by 29 million square feet.
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Impact of Mortgage Interest Rates and Federal Reserve Decisions: Yun addressed the impact of the Federal Reserve's aggressive rate hikes on commercial markets. Rising rates have negatively affected balance sheets for regional and local banks, impacting their ability to provide commercial real estate loans.
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Commercial Real Estate Transaction Volume: Yun estimated a 27% overall decline in commercial real estate transaction volume in 2023. Factors contributing to this decline include the lack of capital, higher financing and refinancing costs, and a weakening economy.
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Effect on Valuation and Opportunities: Due to the challenges, Yun predicted a lower overall valuation of commercial real estate prices. However, he noted that weaker prices could present opportunities for individuals or entities with deeper pockets to make deals in the coming months and years.
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Appraisal Values: According to Yun, appraisal values have fallen by an average of 15% from peaks in early 2022, indicating a downward trend in property valuations.
In summary, Lawrence Yun's presentation provides a comprehensive overview of the challenges and trends in the U.S. commercial real estate market, offering valuable insights for industry professionals and stakeholders.
