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
Sep 23, 2024 - Aging Elevator Fleet Ripe for Replacements
- Building owners and operators are facing a period of cyclical elevator replacement, according to Bisnow. Elevator equipment manufacturers estimate that of the 23 million elevators in service globally, 7 million are 20 years old or older. The useful life of an elevator is between 20 and 25 years. The number of elevators that are ripe for replacement is expected to accelerate in the coming years. In 2023, Otis Elevator saw replacement demand rise 17%. Hybrid work has also contributed to demand for elevator replacement amid the so-called flight to quality in the office market. Demand for office space has shifted to the highest quality properties, which has forced lower tier buildings to modernize to attract and keep tenants. Similar trends are boosting demand for elevator replacements in the multifamily market.
- Developers who were bullish on lab space real estate projects during the pandemic are finding the market is oversaturated, according to The Wall Street Journal. Early in the pandemic, developers moved quickly to build lab space with special climate control, anti-vibration, ventilation, power, and fire safety features. But the market for such spaces has become bloated by a glut of new properties coming online. More than 59 million square feet of new lab space has been built since the first quarter of 2020, and there’s another 19.1 million square feet in development, according to real estate services firm JLL. Compounding the issue is a drop in demand. Many life-sciences, biotech, and pharmaceutical firms have pulled back on investments amid high interest rates, tight lending standards, and economic uncertainty. Lab space properties that cannot find tenants are being marketed as offices in some markets.
- The effort to reshore strategic segments of the US manufacturing sector is attracting investors who hope to cash in on the resurgence, according to The Wall Street Journal. US and foreign firms have earmarked nearly half a trillion dollars to construct new factories to build semiconductors, electric cars, and other products, according to real estate data analytics firm Green Street. Property developers are flocking to the Sunbelt and Rustbelt where the new manufacturing projects are springing up. Developers are betting that manufacturing investments will have knock-on effects for housing, shopping centers, and other development opportunities. The manufacturing boom is a welcome turn of fortune for developers as the office sector languishes due to hybrid work, and the retail real estate market has been lackluster in recent years.
- According to a recent survey by the US Bureau of Labor Statistics (BLS), the percentage of workers who work from home has increased over the last year. In June 2024, 22.3% of the US workforce teleworked on a non-seasonally adjusted basis, up from 19% in June 2023. The share of workers who teleworked increased even though the total number of workers remained essentially unchanged. However, over the same period, the average weekly hours for remote work fell from 28.7 to 27. The BLS attributed the drop in weekly hours spent working from home to wider adoption of hybrid models where workers divide work between the office and home. Between June 2023 and June 2024, the percentage of workers who telework full-time fell from 53.2% to 48.4%. Remote work can put downward pressure on office space demand.
Get A Demo
Vertical IQ’s Industry Intelligence Platform
See for yourself why over 60,000 users trust Vertical IQ for their industry research and call preparation needs. Our easy-to-digest industry insights save call preparation time and help differentiate you from the competition.
Build valuable, lasting relationships by having smarter conversations -
check out Vertical IQ today.