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
Nov 22, 2024 - Office Market Shows Signs of Improvement
- The US office market posted higher net absorption in the third quarter, and vacancy rates remained steady, perhaps signaling that demand for office space has hit bottom and is back on the upswing, according to a recent report by the real estate firm CBRE. Net absorption in Q3 hit 4.3 million square feet – up about 87% from Q2 2024 – which marked the second consecutive quarter of increasing office space demand. Absorption also exceeded the 3.5 million square feet of new office space that came online in Q3 2024. The office vacancy rate in Q3 2024 was unchanged at 19%, a positive signal after nine quarters of rising vacancies. Third-quarter leasing activity decreased slightly from Q2 2024 but rose more than 11% over Q3 2023.
- The troubled office space market may be turning a corner as major companies require workers to spend more time in the office, according to The Wall Street Journal. Amazon, Dell, and 3M have recently issued requirements for more office time for some of their teams. In the third quarter of 2024, a third of all firms required workers to be in the office five days per week, according to workplace strategy tracking firm Flex Index. The push for more in-office time comes amid a cooling of the US white-collar jobs market, which has shifted the balance of power back to companies. While industry observers doubt if workplace occupancies will ever return to pre-pandemic levels, some believe the market may have finally hit bottom. In the second and third quarters of 2024, the amount of occupied office space has remained stable after eight consecutive quarters of contractions, according to data firm CoStar.
- A lack of retail real estate construction in recent years and rising demand for space by expanding large retail chains is putting the squeeze on some small businesses, according to The Wall Street Journal. The tight retail space market advantages larger chain stores that can afford higher rents and have more access to credit. According to a recent survey by Alignable - a social media outlet for small business owners - nearly 60% of small businesses reported their rent had gone up in the last six months and more than half of independent retailers said they were unable to pay their full rent in September.
- While the Federal Reserve’s half-point rate cut in September was welcome news to many commercial property owners, lower rates may not be enough to save building owners who are highly leveraged, according to The Wall Street Journal. Some property owners took on high levels of debt when rates were low just a few years ago. However, when rates began climbing in 2022, some building owners missed payments, betting their creditors would extend loan deadlines. In some cases, banks have lost patience with highly leveraged owners and have opted to take control of properties instead of allowing borrowers to continue missing payments. Commercial real estate observers expect most borrowers and their lenders will be able to weather the current market then refinance once rates drop further.
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