Housing Gains Influence Commercial Real Estate’s Recovery
Improvements in the U.S. housing market are having a positive influence on several commercial real estate sectors, according to industry data. Existing home sales rose 3.4 percent from March to April and the median prices of existing homes jumped 7.6 percent in the same period, according to the National Association of Realtors.
The recent uptick in housing starts, which are nearing an annual pace of 700,000 units, bodes well for the industrial warehouse sector: Prior to the recession, residential building materials accounted for almost 20 percent of the industrial warehouse demand, according to Kevin J. Thorpe, chief economist for Cassidy Turley. Watch for Thorpe’s midyear market outlook in the July/August edition of Commercial Investment Real Estate.
In addition, job creation and rising consumer confidence are driving demand for single-family housing while simultaneously “fueling an underlying demand for commercial real estate space,” said Lawrence Yun, NAR’s chief economist. The retail and industrial sectors are experiencing occupancy gains and rent growth, while the office market will continue to stabilize this year, according to NAR’s quarterly Commercial Real Estate Market Survey.
However, the apartment sector continues to see the greatest gains. “By far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals. This is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors,” says Yun. Rising apartment rents are also having a positive impact on home sales since many renters are starting to view homeownership as a better long-term option, Yun noted.