Lessors of Nonresidential Buildings
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 31,200 firms in the US act as lessors of nonresidential buildings, such as office buildings, shopping centers, and retail stores. The industry includes owner-lessors and firms that rent real estate and subsequently sublet property to others. Professional and office buildings account for about 36% of sales; commercial property, which includes shopping centers and retail stores, account for about 36%; and manufacturing and industrial buildings 8%. Firms may manage properties or outsource management to a third party.
Competition for Desirable Locations
The location of properties is a primary factor that determines rental rates, and properties in sought-after areas are priced at a premium.
Capital-Intensive, Debt Heavy
The nonresidential lessor industry is capital intensive, and firms typically have sizeable investments in real estate holdings.
Industry size & Structure
The average nonresidential lessor operates out of a single location, employs about 5 workers and generates about $5 million annually.
- The nonresidential lessor industry consists of about 31,200 firms that employ 157,000 workers and generate $155 billion annually.
- The industry is concentrated at the top and fragmented at the bottom. The 50 largest firms account for 42% of industry sales. Large firms may operate as real estate investment trusts (REIT) and have properties in foreign countries.
- While commercial space is concentrated in large buildings, large buildings account for a relatively small number of the overall stock of commercial buildings, according to the National Association of Realtors (NAR). The majority of buildings are relatively small.
- Large firms with nonresidential lessor business include Prologis, Simon Property Group, LaSalle Investment Management, and Brookfield Property Partners. The largest firms are fully integrated, own and develop land and buildings, and provide leasing, management, and construction services.
Industry Forecast
Lessors of Nonresidential Buildings Industry Growth
Recent Developments
Jan 17, 2025 - Investors Bullish on Neighborhood Shopping Centers
- In the wake of the pandemic, open-air shopping centers are having a moment, according to The Wall Street Journal. As demand has swung back to in-person shopping, neighborhood shopping centers have been fuller than ecommerce warehouses, according to CBRE. The most desirable retail spaces are those anchored by grocery stores, as grocery store foot traffic was 12% higher in the third quarter of 2024 than during the same period in 2019, according to Globe Street. The types of establishments filling the space adjacent to grocery are ones that face little threat from online retail, such as nail salons, medical centers, yoga studios, and coffee shops. Flexible work arrangements have led to more traffic for neighborhood shopping centers.
- Fitch Ratings’ US CMBS delinquency rate rose by 22 basis points to 2.98% in December 2024 from 2.76 in November. The December rise was driven by a rise in office maturity delinquencies and a reduction in resolution volumes. Commercial mortgage-backed securities (CMBS) are fixed-income investment products backed by mortgages on commercial properties rather than residential real estate. The delinquency rate is the percentage of commercial real estate loans that were 30 or more days past due or in foreclosure. A rising delinquency rate indicates that an increasing number of commercial property owners cannot pay the mortgages on those properties. Current and prior-month delinquency rates for December and November were: Office: 7.18% (from 6.28% in November); Retail: 3.96% (from 3.80); Hotel: 3.43% (from 3.64%); Multifamily: 0.77% (from 0.79%); Industrial: 0.37% (from 0.15%); Mixed Use: 4.43% (from 4.03%); Self-storage: 0.05% (from 0.01%); and Other: 1.00% (from 0.97%). An increase in commercial foreclosures can boost demand for commercial appraisal services.
- Even with a nationwide glut of office space, there’s still a shortage of the high-quality space that some firms want to lease, according to The Wall Street Journal. At the end of 2024, the national office vacancy rate was more than 20%, according to Moody’s. However, many business districts lack enough top-tier space with amenities like proximity to transit hubs, high-end fitness centers, outdoor spaces, and nearby restaurants. High-quality office space is in higher demand as growth sectors such as technology, transportation, entertainment, and finance call on employees to spend more time in the office and hope to lure them with upscale perks and experiences. In the third quarter of 2024, occupancy in top-tier office properties was 22% higher than at the same time in 2019, according to CBRE. Over the same period, occupancy for all other types of office space fell 5%.
- An oversupply of life sciences real estate that took hold in 2024 is likely to persist in 2025, according to real estate firm JLL. The surplus of life science and lab space is putting downward pressure on rents and slamming the brakes on new construction. Historically, life sciences property rents start to move upward during periods of increased construction activity, and JLL doesn’t expect that to happen for another four to five years. Rent growth in secondary life sciences markets will be challenging to the point that some properties – even ones that have yet to come online – may be converted to office or tech-focused space.
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