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
Coronavirus Update
Nov 9, 2021 - Drop In New Cases Levels Off
- A hoped-for rebound in commercial real estate rental activity may be delayed if the decrease in the number of new COVID-19 cases stalls. The daily average of new COVID-19 cases has hovered around 72,000 infections for the 14-day period ending November 4 as outbreaks smolder, particularly in the northern half of the country. That's down 58% from the most recent high mark of 172,500 average daily cases on September 13. Case counts have fallen in every region, most sharply in the South, where the delta wave hit hardest over the summer. Vaccination rates have also risen in recent months, albeit more slowly than when the shots were first rolled out. Nearly 58% Americans were fully vaccinated by the end of November, according to the Centers for Disease Control and Prevention. Many experts initially suggested that herd immunity would occur when 60-70% of the population gained immunity, that estimate rose to 85-90% after COVID's delta variant took over this summer. Some experts say that herd immunity isn't possible at all.
- Fitch Ratings’ commercial mortgage-backed securities (CMBS) delinquency rate decreased to 3.33% in August from 3.59% in July, the largest monthly decrease since the onset of the pandemic. Fitch analysts cited continued strong resolution volume, fewer new delinquencies, and robust new issuance as key causes of the decrease. 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. The rate is tracking Fitch’s expectation to end 2021 below 4.0%, albeit with some continued volatility.
- Fitch expects continued volatility in the CMBS delinquency rate through the remainder of 2021, as stimulus burns off and debt relief expires, but also as loans get modified or brought current with some property cash flows recovering from the severe stress of 2020. Many properties continue to struggle even as businesses re-open. Any significant reduction in the overall rate will not occur before 2022.
- Fitch Ratings expects poorer retail and office asset performance in 2021 due to accelerating tenant store closures and bankruptcies for the retail sector, negative rent growth, and increasing cap rates for the office sector.
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