Commercial market shows mixed recovery

The commercial real estate market's recovery has positives and negatives.

Property management companies likely experienced issues in the commercial real estate market in recent months, despite improving aspects of the recovery situation.

Recovery was slower than initially thought this year, but according to the National Association of Realtors, this should not be the case in the future. The main reason for the issues in recent months is the lack of demand in multiple sectors, including the office market. There likely won't be a significant improvement in completed developments for the sector for the next year, which is also an ongoing issue in the industrial and retail sectors.

"The commercial real estate market was an innocent bystander of the housing crisis, and the broad credit tightening has made it much longer for the market to recover," said Lawrence Yun, chief economist at the NAR. "Commercial real estate depends on an expanding economy, as well as available credit, something that is extremely tight right now. However, despite some challenges in the market there are hopeful signs as commercial investments increase, most notably in the multifamily sector."

The multifamily sector specifically experienced improved growth, as well as a heightened demand level in the past few months, the firm explained. Meanwhile, the sector was typically strongest in recent years, compared to the other sectors. Recently, the multifamily market outpaced inflation increases, and this is the only sector to do this. Much may be due to the continued increases in occupancy, as well as steady jumps in rental prices.

The demand in the multifamily market increased markedly in recent months, and an overall lack of supply hurt the chances of meeting this demand, said Calvin Schnure, vice president of research and industry information at NAREIT. Supply will likely remain low for many parts of the commercial real estate industry in the coming months, but this could increase demand and help the market grow.

Commercial gains prevalent this year
Improvement in the commercial market was noticeable throughout much of the year. According to the August edition of the Commercial Repeat Sale Indices from CoStar Group, the Value-Weighted Composite Index rose to its highest point in three years. This figure, which shows repeat sales by transaction size, jumped more than 34 percent from the beginning of 2010, as well. The Equal-Weighted Index also jumped more than 7 percent in August, which was the highest increase since 2006.

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