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 Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 30,000 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 4-5 workers and generates about $4.4 million annually.

    • The nonresidential lessor industry consists of about 30,000 firms that employ 146,800 workers and generate $132 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
                                    Source: Vertical IQ and Inforum

                                    Coronavirus Update

                                    Apr 7, 2022 - Return to Offices Slows
                                    • New COVID-19 cases caused by the Omicron variant fell as quickly as they rose, giving many employers hope that more of their white-collar workers return to the office. However, the return to offices has been slow. During the first week of December 2021, about 40% of workers had returned to offices in the ten cities monitored by security firm Kastle Systems. By March 30, 2022, the percentage of workers in the office was 42%. Hybrid working models are expected to be the new norm, with long-lasting impacts on office occupancy. “It’s hard to imagine, when you look at office workers who can do their jobs remotely, that those numbers are going to get above 60% to 65% nationwide,” said Brian Kropp, chief of human-resources research for advisory and research firm Gartner.
                                    • Firms looking for new options to deal with a pandemic-driven scarcity of storage are signing deals for new space long before ground is broken and expanding searches for sites farther from coastal ports. “The supply-and-demand imbalance is more significant than I have seen,” said Robert Thornburgh, the chief executive of the Society of Industrial and Office Realtors. “There is limited inventory of industrial space. It is almost evaporating before your eyes if you are even lucky enough to know about it.”
                                    • The Dallas-Fort Worth area of Texas, Phoenix, and Chicago had the most industrial space under construction in the first two months of 2022, according to CommercialEdge. The national average rent for industrial space in the top 30 US markets was up 4.4% in February compared to a year earlier. The average US vacancy rate for industrial space tightened to 5.2% in February. Amid growing e-commerce demand, rental rates for warehouse and logistics space could rise 15% over the next two years, according to Cushman & Wakefield.
                                    • Store openings may have exceeded store closures for the first time in five years in 2021, according to Coresight Research. Analysts cite low rents, the need to have customers evaluate products in person, and a desire to raise brand awareness as key causes of the change. Rebecca Fitts, director of real estate at Leap and former real estate director at Warby Parker, said that demand among direct-to-consumer businesses to open brick-and-mortar locations has never been stronger.
                                    • Fitch Ratings’ US CMBS delinquency rate fell 22 basis points to 2.48% in February 2022 from 2.7 in January, driven by stronger resolution volume and fewer new delinquencies. CMBS are fixed-income investment products that are 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 are as follows: Hotel: 8.39% (from 8.8% in January). Retail: 6.85% (from 7.56%); Mixed Use: 2.55% (from 2.65%); Office: 1.19% (from 1.43%); Multifamily: 0.36% (from 0.43%); Industrial: 0.15% (from 0.13%); Other: 0.80% (from 0.79%).
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