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
Jul 22, 2024 - CRE Market Mixed
- The health of the US commercial real estate (CRE) market is mostly solid, except for the beleaguered office sector and a minor slowdown in industrial property demand, according to a July report by Moody’s. The office sector continues to face significant headwinds as hybrid work models weigh on demand. Office vacancies in Q2 2024 hit a record-setting 20.1%, marking the third consecutive quarter that vacancies hit new all-time highs. Despite signs that consumers may be pulling back on spending, the retail vacancy rate in Q2 held steady compared to the same period in 2023, and asking rents saw a slight increase. The market for industrial space has softened compared to the pandemic years when warehouse construction boomed. Industrial vacancies increased about 1.2% in Q2 2024 compared to Q2 2023, but asking rents have remained steady.
- Since Q4 2022, weekly US in-person office occupancy has remained a stubbornly low 50%, according to a June 2024 report by The Conference Board. In the wake of the pandemic, employers have found that offering hybrid work schedules is an effective way to attract and retain workers constrained by long commutes and higher costs of living. Nearly 70% of US firms offer their employees hybrid or remote flexibility, up from about 51% in Q1 2023. According to data firm CoStar, when companies sign new leases they are reducing their office footprints by about 19%. Low office occupancy brings risks for the commercial real estate sector and cities’ central business districts that depend on office worker spending.
- Amid a recent uptick in retail bankruptcies, retail space landlords don’t expect their properties to stay vacant for long, according to The Wall Street Journal. In 2023, 26 large retailers declared bankruptcy, marking the highest number since 2020. So far this year, more than a dozen other retailers have announced store closures as part of their bankruptcy restructurings. However, some building owners see opportunity in financially distressed tenants breaking leases. Some industry insiders suggest that recently vacated spaces can often be leased at higher rents to higher-quality tenants. Despite increased economic uncertainty and signs of weaker consumer spending, demand for retail space remains steady, primarily due to a chronic lack of new retail construction. Investments in retail construction have been weak since the recession of the late 2000s, and conditions were made worse by the pandemic. In the first quarter of 2008, before the financial crisis, contractors built 80 million square feet of new retail space, according to data firm CoStar Group and JLL research. In the first quarter of 2024, only 9.5 million square feet of retail construction was completed.
- Once considered a risky bet by some commercial property landlords, restaurants have become one of the fastest-rising segments of the retail real estate market, according to The Wall Street Journal. Several factors are helping to drive the trend, including wage growth, low unemployment, the popularity of foodie culture, and Millennials’ tendency to marry later and eat out more. In 2023, food service establishments accounted for 19% of total retail leases, the largest share held by any single retail category, according to data firm CoStar. Landlords have traditionally been suspicious of restaurants because they are costly to build out and have a high business failure rate. However, property owners are warming up to credit-worthy restaurant chains because they can help attract foot traffic to other businesses nearby.
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.