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The National Association of Realtors (NAR) reports vacancy-rate improvement across all commercial real estate sectors, although a majority of office and industrial tenants continue to enjoy concessions and discounts, and construction forecasts remain poor. NAR analysts predict vacancy rates will continue to shrink in 2012, which arguably translates to better market performance. More rent increases in the multifamily housing sector would appear to bear this out and areas experiencing the lowest vacancy (and therefore higher apartment rents) include New York City, Minneapolis, Portland, Oregon, and San Jose, California. For more on this continue reading the following article from Property Wire.

All of the major commercial real estate sectors in the US are seeing improved fundamentals, but multifamily housing is becoming a landlord’s market commanding bigger rent increases, the latest Commercial Real Estate Market Survey from the National Association of Realtors shows.

Lawrence Yun, NAR chief economist, said vacancy rates are improving in all of the major commercial real estate sectors. ‘Sustained job creation is benefiting commercial real estate sectors by increasing demand for space,’ he pointed out.

‘Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest,’ he added.

NAR forecasts commercial vacancy rates over the next year to decline 0.4% in the office sector, 0.8% in industrial real estate, 0.9% in the retail sector and 0.2% in the multifamily rental market.

‘Household formation appears to be rising from pent up demand. The tight apartment market should encourage more apartment construction. Otherwise, rent increases could further accelerate in the near to intermediate term,’ explained Yun.

The Society of Industrial and Office Realtors shows a notable gain in its SIOR Commercial Real Estate Index, an attitudinal survey of 297 local market experts.

The SIOR index, measuring the impact of 10 variables, jumped 8.3% to 63.8 in the fourth quarter of 2011, following a gain of 0.6% in the third quarter.
 
However, the index remains well below the level of 100 that represents a balanced marketplace, which was last seen in the third quarter of 2007.

Most market indicators posted advances in the fourth quarter, but 71% of respondents said leasing activity is below historic levels in their market, an improvement from 83% in the third quarter. Only 29% report there is ample sublease space available.

Office and industrial space remains a tenant’s market with 87% of participants feeling that tenants are getting a range of benefits ranging from moderate concessions to deep rent discounts.

Construction activity is still low, with 95% of experts reporting it is below normal, and 83% said it is a buyers’ market for development acquisitions. Prices are below construction costs in 78% of markets.

Participants are broadly expecting stronger conditions for the current quarter, with two out of three expecting market improvement.

Vacancy rates in the office sector are projected to fall from 16.4% in the current quarter to 16% in the first quarter of 2013.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.5%, New York City at 10% and New Orleans at 12.4%.

After rising 1.6% in 2011, office rents should increase another 1.9% this year and 2.4% in 2013. Net absorption of office space in the US, which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 20.1 million square feet in 2012 and 28.1 million next year.

Industrial vacancy rates are likely to decline from 11.7% in the first quarter of this year to 10.9% in the first quarter of 2013.

The areas with the lowest industrial vacancy rates currently are Orange County, California with a vacancy rate of 4.8%, Los Angeles at 4.9% and Miami at 7.6%.

Annual industrial rent is expected to rise 1.8% in 2012 and 2.3% next year. Net absorption of industrial space nationally is seen at 40.6 million square feet this year and 57.7 million in 2013.

Retail vacancy rates are forecast to decline from 11.9% in the current quarter to 11% in the first quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San Francisco at 3.6%, Fairfield County, Connecticut, at 5.1% and Long Island, New York, at 5.4%.

Average retail rent should rise 0.7% this year and 1.2% in 2013. Net absorption of retail space is projected at 9.9 million square feet this year and 23.9 million in 2013.

The apartment rental market, known as multifamily housing, is likely to see vacancy rates drop from 4.7% in the first quarter to 4.5% in the first quarter of 2013. Multifamily vacancy rates below 5% are generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are New York City at 1.8%, Minneapolis and Portland, Oregon, both at 2.5%, and San Jose, California at 2.7%.

After rising 2.2% last year, average apartment rent is expected to increase 3.8% in 2012 and another 4% next year. Multifamily net absorption is forecast at 209,900 units this year and 223,600 in 2013.

This article was republished with permission from Property Wire.