K
  • Real Estate - Commercial Vacancy

    Commercial Real Estate Vacancy: A Better Way to Judge Market Recovery

    By Larry Anweiler, ABD, Full-Time Faculty, Kaplan University 
    Published March 2015

    Over the past few years we have all heard that the market is in recovery. Proponents of this position continually point at the financial markets and in particular the Dow Jones Industrial Average (DJIA) as the supporting proof of their claim. However if we look below the surface we find several indicators that do not support the promising picture being offered to the public. A better indication may be commercial real estate vacancy as these indicators better explain the current recovery or lack of recovery dependent on your viewpoint.

    What most people do not realize is that the DJIA is a composite of 30 of America’s largest corporations. Some companies included in the index include Caterpillar Inc., Coca-Cola, McDonald’s Corp, and Microsoft. These companies no longer restrict their business within U.S borders, but have extensive operations worldwide including extensive manufacturing operations overseas. Additionally, today these companies report the majority of their income from sales outside the country. This could explain the reason for the jobless recovery as these companies move their manufacturing facilities outside the United States to take advantage of less expensive work forces and shipping charges. Also important to note is that these corporations do not employ the majority of America’s work force. Most Americans are employed by small and midsized companies doing business within the United States.

    The collapse of the real estate market starting in 2007 resulted in restricted capital investment in America’s small business and medium sized companies that were weakest financially. This loss of active business enterprises caused unemployment opportunities to decrease, and Commercial Real Estate (CRE) vacancies to increase in local and national markets, as small business owners shuttered their doors due to restricted capital resources and lower customer demand.

    In a traditional CRE market 5–7% vacancy in considered to be a healthy market. This allows enough inventory for new businesses to find suitable space and does not allow landlords to push up rents drastically. Vacancy rates below 5% usually indicate increased rents but also spurs investment in new CRE building as returns increase for owners. Vacancy rates above 10% indicate excess CRE inventory and force owners who wish to maintain full properties to reduce rents. Value of buildings in these markets declines, which restrict capital investment in new projects, as investors are unwilling to invest in projects that may remain empty.

    Today, small business owners are slow in replacing current vacant space. This may be due to a lack of available capital for new business formation, or a persistent concern over new government demands on employers and higher tax liabilities. As reported by Coldwell Banker Real Estate Group, Inc. in a report dated April 8, 2014, CRE vacancy rates among all categories remained above the 10% level for all major CRE groups. In this report, office vacancy for the first quarter of 2014 was reported at 14.8%; industrial came in at 11.1%; and retail vacancies were reported at 11.9% nationally.  

    Watching CRE vacancy rates will prove to be a better indication as to the overall health of the U.S. economy. It will give more insight into true employment opportunities as new business forms and will also indicate new business owner’s willingness to invest within current market conditions. CRE vacancy rates should also prove to be a sound leading indicator for those wishing to invest in CRE development or new business formation.

     

    Larry Anweiler is a full-time faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.

     

    Back to Center for Excellence

  • Accounting - Ethics Thumb

    Keep Your Organization From Going Down the Road to “Ethical Collapse”!

    By Cynthia Waddell, PhD, CPA, CFE

    Article by Faculty
    Jerry Taylor

    Cost of Capital

    By Jerry Taylor

    Article by Faculty
    GeoffreyVanderPal Thumb

    Identity Theft and Privacy

    By Geoffrey Vanderpal

    Article by Faculty
    Fall_Clean_Up

    Fall Clean Up

    By Dr. Denise Schoenherr

    Article by Faculty
    Stanley Self Thumb

    Revised GAAP Treatment for Goodwill

    By Stanley W. Self, CFE

    Article by Faculty
    Career Resources Thumb

    Accounting

    By Rachel Byers, Full-Time Faculty, School of Business

    Accounting firms are taking advantage of some emerging trends.

    Career Advice
    Career Resources Thumb

    Investments and Wealth Management

    Change is the name of the game in wealth management!

    Career Advice
    Career Resources Thumb

    Real Estate

    Most people do not realize there are a variety of jobs in this field.

    Read More
    Career Resources Thumb

    Risk Management and Insurance

    According to the BLS, employment of insurance sales agents is projected to grow.

    Career Advice
    Definitions Thumb

    Accounting

    Access definitions and FAQs related to accounting.

    Read More
    Definitions Thumb

    Investments and Wealth Management

    Access definitions and FAQs related to investments and wealth management.

    Read More
    Definitions Thumb

    Real Estate

    Access definitions and FAQs related to real estate.

    Read More
    Definitions Thumb

    Risk and Insurance

    Access definitions and FAQs related to risk and insurance.

    Read More
    Toby Talks

    Toby Talks: Is Now a Good Time to Start a Real Estate Career?

    Kaplan Real Estate Education's Toby Schifsky looks at the factors to consider when pursuing a real estate career.

    Watch Now
    RE_Tips

    Toby Talks: Do I Need a Business Plan?

    Toby Schifsky talks about the importance of goals and action steps for achieving them.

    Watch Now
    Study Tips

    Tips for Insurance Licensing Exams

    Access preparation and practice advise from Kaplan Financial Education experts Mary Orn and Julie Ramsey.

    Wach Now
    Maylee Testimonial

    Maylee's Success Story

    Maylee talks about her experiences with Kaplan Financial Education and preparing for her exams.

    Wach Now