The National Association of REALTORS® (NAR) recently released its Q2 2019 Commercial Real Estate Trends and Outlook report.

Importantly, NAR indicated in this report that the country’s economic growth slowed in Q2 2019 to +2.1%. This slowing contradicted economic patterns of acceleration that began in 2016. Existing tariffs have already impacted economic growth while the threat of additional tariff increases further impact that growth.

Gross domestic private investment contracted by 5.5% in Q2 2019 and is expected to contract even further to a rate of 5.2%. Residential investment spending was down by -0.6% and non-residential investment spending slid by -1.6% in Q2 2019.

Good economic news related specifically to job growth and nominal wage growth. In terms of jobs, The Southern and Western states posted the highest annual job gains as of June 2019:

  • +3.4% in Nevada
  • +2.8% in Arizona
  • +2.7% in South Dakota
  • +2.6% in Florida
  • +2.4% in Idaho
  • + 2.3% in Wyoming
  • +2.0% in Colorado

Average weekly wages rose +2.8%, a real positive since the inflation rate was 1.6% at the end of June 2019. Additionally, nominal wages increased in all states with the highest increases in

  • +14% in Washington DC
  • +8.7% in Wyoming
  • +8.2% in Nevada
  • +8.1% in Utah
  • +8.0% in Kansas

Arkansas, California, Colorado, Oklahoma, New Mexico and Oregon saw nominal wages rise between +6.2% – +7.4% during this same period.

In terms of construction activity, the Q2 2019 Commercial Real Estate Quarterly Market Survey indicated that construction activity increased on average approximately +4% from one year ago with the strongest increase being in apartment or multi-family properties despite the value of construction being down some -5% from one year ago.

Regionally, commercial property prices continued to trend upward. The West experienced the steepest price increase at +4%, the South at +2%, the East at -0.1% and the Midwest at +0.3%.

Sales and leasing activities were the most robust in warehouse/industrial and multi-family markets. Apartment vacancy rates stood at 5.2% while warehouse vacancy rates came in at 5.8%.

NAR’s outlook for 2019-2020 indicates modest macro-economic GDP growth to slow to 2.2% and unemployment rate to remain below 4.0%. NAR anticipates housing starts to increase during the last half of 2019 to meet demand from growing household formations.

NAR is bullish on both the multi-family and industrial sectors within commercial real estate. It sees commercial market opportunities in areas having strong population growth, Opportunity Zones, residential housing, adaptive reuse projects, mixed use properties, affordable housing, co-working space development and leasing, and construction of warehouse, storage and flexible spaces.

Challenges within the commercial sector, according to NAR, include low inventory/scarcity constraints for sales and leasing, continued escalating construction costs and unsustainable high rents.

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