Industry Overview

Real estate is the world's largest asset class,
comprising 54 percent of global financial wealth.

Overview of U.S. Commercial Real Estate Market

The U.S.commercial real estate market is estimated to be $4 trillion. The main product categories are office, retail, and industrial. The Building Owners and Managers Association determined that the combined financial impact of all the industries that serve and support the office sector--utilities, construction, elevators, security, and so forth--amounted to more than $104 billion last year.

Office

The value of office construction increased from $22.9 billion in 1995 to $31.2 billion in 1998.
In 1997 and 1998, the amount of vacant inventory was less than 10 percent of total supply. Large-block Class A office space is in the greatest demand and shortest supply.
Office rental rates have increased from $21.11 per square foot in 1994 to $27.91 per square foot in 1998. This is an 36.8% increase.
Office building sales prices increased 26.7% for this same time period.

Retail

The value of retail construction increased from $31.1 billion in 1993 to $42.7 billion in 1998.
The vacancy rate declined from 11.6% in 1992 to 8% in 1998.
Retail lease rates increased 17.8% from 1994 to 1998.
Retail sale prices increased 15.8% for the same time period.

Industrial

The value of industrial construction declined $34.4 billion in 1990 to $24.8 billion in 1998.
The vacancy rate was 7% in 1998.
Industrial lease rates increased by over 10% from 1994 to 1996.

Members

There are a number of activities involved in the commercial real estate market. Primary activites involved include:

brokerage,
property management,
acquisition and
development

Some the top players in the industry are:

brokerage: Grubb & Ellis, Coldwell Banker, Cushman & Wakefield, NAI
property management: Prudential, Trammell Crow Company, Colliers International
acquisition: Prudential
development: Trammell Crow Company

Challenges

The real estate industry is faced with challenges brought on by new technologies both on the demand and supply of real estate services and the methods of transacting the business. There is concern that with all the new technologies, traditional commercial real estate will cease to exist because business could be conducted anywhere with virtual offices. Currently, there is little evidence that this is happening.

There is evidence, however, that technology is changing how real estate transactions are conducted. According to a recent California Association of Realtors survey, almost 40 percent of home buyers logged on to the World Wide Web to locate their new residence. While the commercial market hasn't seen such a dramatic increase of usage of the internet, it appears that it is coming.

According to top management at NAI, one of the largest commercial real estate brokerages:

"The Internet will radically alter the brokerage industry. The business has long thrived on inefficiency and limited access to information. The Internet has already begun to open the floodgate of information, but we are still at the very early stage of this transformation.
The future will include a much more orderly and efficient transaction initiation, management and fulfillment process. Clients will be able to log onto a system and easily order the acquisition or disposition of space just like they currently order a stock or bond. All of the necessary due diligence and market information including real-time forms and required documents
will be available on line. The brokers' role will migrate from "salesperson" to a higher level role as the strategist, analyst, deal structuror, negotiator and underwriter."

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