Commercial Real Estate Market GlanceHere is an overall look at the U.S. economy and commercial real estate market performance. This article gives an overview of the interest rates, unemployment snapshot, and payroll employment additions. To investigate the commercial real estate market performance, the retail, office, and industrial markets are specifically looked at. Within these specific markets the vacancy rate, rental rates, and cap rates are then analyzed for a comprehensive overview.

Economy Changes: Interest Rates & Growth

In March the chairman, Jerome “Jay” Powell, and the U.S. Federal Reserve hiked short-term interest rates for the first time in 2018 and sixth time since the present cycle of rising rates began in December 2015 when rates were near zero percent. The quarter-point hike rate, which was widely expected, puts the new Federal funds rate at a 1.50% – 1.75% target range. Three to four additional rate hikes are anticipated for 2018, which would put interest rates at 2.25%-2.5% by year-end.

Fed Rate Hike Commercial Real Estate

Unemployment Snapshot

In May the United States unemployment rate dropped to 3.8%, the lowest point in 18 years, indicating a tightening labor market. The one-tenth of a percentage point drop in the unemployment rate pushed it to a level last seen in April 2000. The jobless rate is now where the Fed forecasted it would be by the end of this year.

Payroll Employment Additions For May 2018

  1. Retail Trade – 31,000
  2. Healthcare – 29,000
  3. Construction – 25,000
  4. Professional & Technical Services – 23,000
  5. Transportation & Warehousing – 19,000
  6. Manufacturing – 18,000

Commercial Real Estate Market Overview Q1 2018

1. The Retail Market

The vacancy rate for the retail market in q1 2018 is 4.5%, this amount remains unchanged from the previous quarter. Rental rates saw a 1.6% increase overall in the first quarter of 2018, reported at $16.49 per square feet. Lastly, the average cap rates for the retail market is 7.12%.

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2. Office Market Performance

The office market vacancy rate remains unchanged from q4 2017 to q1 2018, currently reporting 9.3%. Current rental rates for the office sector are at $25.03 per square feet which is a half percent increase from 2017 fourth quarter. Finally, the average cap rates for the office market are in at 7.39%.

3. Industrial Market Analysis

Much like the retail and office market, the industrial market remains unchanged from the previous quarter at 4.8%. Out of all three sectors, the industrial market sees the highest increase in rental rates which are now at $6.56 per square feet. The industrial market also sees the highest average cap rates in 2018’s first quarter at 7.40%.

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U.S. Labor Report Key Points for May 2018

• Current Federal funds rate at a 1.50% – 1.75% target range. Possible rate hike for June 2018.
• Unemployment rate at 3.8% – its lowest point in 18 years.
• The total payroll employment additions increased by 223,000, which was more than the
estimate of 188,000. It was the 92nd consecutive month of job creation.
• Average hourly earnings rose slightly, lifting the year-on-year gain to 2.7 percent.

Watch our comprehensive info-graphic below:

Commercial Real Estate Market