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Main Street commercial leasing catches fire

Main Street commercial real estate has been a hot commodity so far this year. Companies gobbled up space in smaller office, industrial and retail buildings over the first half of 2016 at a pace not seen since a decade ago, Boxwood Means reported.


Businesses absorbed 76.1 million square feet during the past second quarter in buildings under 50,000 square feet, up 90 percent compared to the same quarter in 2015, Boxwood Means said. For the six months ended June 30, companies took over a total of 106.3 million square feet, the largest amount since 2006, the company said. 

Boxwood Means Principal Randy Fuchs said second-quarter net absorption was close to double the decade-long quarterly average of 40.2 million square feet.

“This unprecedented demand is the primary reason that I say that conditions on Main Street USA today appear to be healthy and the outlook favorable,” Fuchs told Scotsman Guide News.

Office and retail absorption was up 86 percent and 69 percent, respectively, in the first half of this year, compared to the same period in 2015. Industrial absorption was up in the first half of 2016 by 42 percent, compared to the same period in 2015. Meanwhile, the vacancy rates for office, retail and industrial have fallen to levels that are 50, 90 and 190 basis points, respectively, below the vacancy rates a decade ago.  

The heavy demand for the space in small commercial buildings comes as the economy has sent off mixed signals, and with signs in recent quarters of a slowdown in the market for top-end properties in large cities.

Business investment and gross domestic product growth have been weak in recent quarters. However, analysts say that strong consumer spending and job growth are helping propel leasing activity in smaller commercial properties, particularly in small cities and towns.

“Obviously there is a part of the economy underpinned by consumers that is doing well,” said George Ratiu, a commercial analyst with the National Association of Realtors. “In that regard, it is not surprising to see demand, particularly in the retail sector in Main Street America, continue to rise.”

In the retail world, Ratiu said foreign discount grocery-store chains, such as the Aldi and Lidl chains, have been rapidly expanding in the U.S.

“Their stores are small footprint stores,” Ratiu said. “They aren’t your typical Walmart Supercenter.”

Sales of smaller commercial properties valued under $5 million totaled $37.4 billion through May, which is running 2.5 percent ahead of the same period in 2015, Boxwood Means said. Last year, at $96.4 billion, was a record for sales volume. 


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