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Sales of small commercial properties hit record level

In 2015, sales of small commercial properties reached a record level 11 months into the year, even as leasing activity fell off compared to 2014 and the demand for space in some sectors cooled significantly, Boxwood Means reported.

Through November, sales of commercial assets, including multifamily properties, priced under $5 million totaled $82.4 billion, surpassing the record annual-sales total set in 2014, the company said. 

Despite strong sales numbers, the small-cap market also showed signs of slowing down from a decade-long recovery. Notably, leasing activity for industrial properties fell nearly 25 percent in 2015, compared to the record pace set in 2014, Boxwood Means reported.

Retail absorption also was down 6.7 percent compared to 2014, while leasing of smaller office properties rose 2.2 percent.

“There is some uncertainty coming into this year as to whether tenants are going to want to take up a lot more space,” said Randy Fuchs, principal of Boxwood Means. “You saw this in particular in the industrial sector, which had been very strong and had shown all the leadership among the three property types for years now. They seemingly lost some steam.”

The net leasing of commercial properties under 50,000-square feet, excluding multifamily, totaled 153.3 million square feet for all of 2015, which was down 12.7 percent compared to 2014, but was still the third-highest total over the last 10 years, Boxwood Means reported.

Vacancy rates also fell, although the vacancy for industrial and retail properties is below the levels at the peak of the market in 2006. Office-property vacancies are still slightly above the 2006 market peak.

Fuchs said that builders and developers are starting to react to the low vacancy levels and strong increases in rents.

"You are starting to see some increase in supply, which had been negligible beforehand," he said. "There had been declines in supply."   

The industrial sector, for example, saw a nearly an 80 percent increase in completions in the fourth quarter of last year, compared to the same quarter a year earlier, Fuchs said. 

 “The overall picture, the headline, is that the market is still very strong,” Fuchs said. “We are seeing some slowdown in the velocity of leasing activity or net absorption, but I don’t see that necessarily as a cause for concern at this point.”


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