April 26, 2018

An Uneven Commercial Recovery

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An Uneven Commercial Recovery

Even as the fundamentals in the residential real estate market improve, the commercial sector is “hobbling to recovery,” said NAR Chief Economist Lawrence Yun. Commercial real estate suffered “collateral damage” as a result of the residential collapse even though commercial was not plagued by subprime mortgages and lax underwriting standards that were prevalent with residential sales during the housing boom.

At the Commercial Real Estate Forum Friday during the 2012 REALTORS® Conference & Expo, Yun told attendees the commercial comeback is starting to take hold in transactions involving bigger properties worth more than $2.5 million. Demand for multi-family units is strong, as are price gains compared to the retail and office sectors. He estimated that rental property growth reached 6 million units over the past five years.

Yun pointed out that multifamily is the only commercial sector where rents are outpacing inflation. Apartment vacancy rates have been declining mostly due to young people who cannot obtain a mortgage, as well as families who went through foreclosure.

Commercial lending activity, Yun noted, has been severely hampered by the financial reforms in Dodd-Frank legislation since smaller banks that have handled much commercial activity in the past are far more burdened by the new regulations than larger institutions.

Also speaking at the forum, Calvin Schnure, vice president, research and industry information at NAREIT, echoed Yun’s predictions for the apartment sector. “Pent-up demand continues to drive the multifamily sector while new supply falls short,” he said. “Market conditions for multifamily have tightened since the housing crisis.”

—Rob Freedman, REALTOR® Magazine

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