Smaller commercial properties in secondary markets are still attracting buyers at good prices, but demand for big-market mega-properties appears to be easing, NAR second-quarter data suggest. Large markets saw a 5 percent annual decline in sales, while smaller markets saw a sales boost of 4 percent.
“Shrinking cap rates and the higher interest rate environment are expected to lead to a plateau in price growth over the next year, especially for Class A assets in large markets,” NAR Chief Economist Lawrence Yun says. “As a result, investors will continue to look to small and tertiary markets for properties that have the best opportunity to provide stability and generate solid returns.”
On a national basis, vacancy rates are expected to retreat 1.1 percent to 11.9 percent for offices, 1.1 percent to 7.8 percent for industrial properties, 0.4 percent to 11.4 percent for retail, and 6.6 percent to 6.1 percent for apartments.
“A very healthy labor market and stronger confidence and spending from both consumers and businesses boosted economic expansion to a solid 3.0 percent last quarter,” says Yun.
“There’s momentum for more of the same growth to close out the year, which bodes well for sustained interest in all types of commercial space.” Yun added that the demand cycle for properties in larger markets is maturing, which means investor interest will likely focus on smaller markets.
Coverage in The Voice for Real Estate.