The National Association of Realtors (NAR) believes commercial property in the U.S. is positioned for growth, although a continuing struggle in the jobs sector may cause bumps in the road. Increased imports and exports are boosting interest in warehouse and industrial properties, while job troubles and loan difficulties for prospective homebuyers are helping advance the residential rentals market. NAR analysts say that while underlying fundamentals look for commercial real estate, over regulation of banks and lending may cause funding for investment to dry up. For more on this continue reading the following article from Property Wire.
Positive underlying fundamentals continue to support all of the major commercial real estate sectors in the United States, but a slowdown in job creation and ongoing tight loan availability has tempered growth in some areas, according to the National Association of Realtors.
In its latest commercial real estate forecast the NAR’s chief economist Lawrence Yun says that there are mixed results among the commercial sectors. ‘Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector,’ he said.
‘Industrial and warehouse space is holding on better because imports and exports have advanced. While exports to Europe generally are down, trade has been robust with India, China and other Asian nations, along with Brazil, Mexico and our strongest trading partner Canada,’ he added.
Although still positive, dampened demand is slightly moderating rent growth with the exception of the multifamily market, Yun pointed out. ‘Sharply higher demand for apartments is causing rents to rise at faster rates. A return to normal household formation will mean even lower vacancy rates and higher rents in the future,’ he added.
The current commercial real estate cycle has been driven by shifts in demand without an oversupply of new construction. ‘The difficulty small businesses have in getting commercial real estate loans for leasing or purchase is keeping a lid on demand. Multifamily is the only commercial sector with a notable growth in new space, with some lending provided through government loans,’ Yun explained.
With the exception of multifamily, vacancy rates remain above historic averages seen since 1999. Over that time frame the typical vacancy rate has been 14.4% for the office market, 10.1% in industrial, 8.1% for retail and 5.8% in multifamily.
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Vacancy rates are marginally declining and rents are modestly rising in all of the sectors, but significant changes in the outlook are unlikely before the end of the year. ‘Overall companies hold plentiful cash reserves, but they are hesitant to hire without clarity over how these outstanding issues will impact the bottom line,’ Yun said.
‘Commercial real estate gains could be thwarted if lending from small and community banks dry up from excessive regulatory compliance costs, and if international big-bank capital rules are applied to smaller lending institutions,’ Yun added.
Vacancy rates in the office sector are expected to fall from an estimated 16.1% in the third quarter to 15.6% in the third quarter of 2013. The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.4%, New York City at 10% and New Orleans at 12.8%.
Office rent is projected to increase 2% this year and 2.6% 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, should be 24.1 million square feet in 2012 and 47.8 million next year.
Industrial vacancy rates are forecast to decline from 10.7% in the third quarter of this year to 10.5% in the third quarter of 2013. The areas with the lowest industrial vacancy rates currently are Orange County, California, with a vacancy rate of 4.6%, Los Angeles at 4.8% and Miami at 6.8%.
Annual industrial rent is likely to rise 1.7% in 2012 and 2.4% next year. Net absorption of industrial space nationally is seen at 59.8 million square feet this year and 67.2 million in 2013.
Retail vacancy rates are projected to decline from 10.9% in the third quarter to 10.7% in the third quarter of 2013. Presently, markets with the lowest retail vacancy rates include San Francisco at 3.8%, Fairfield County, Connecticut at 3.9% and Long Island, New York and Orange County, California both at 5.3%.
Average retail rent is forecast to rise 0.8% this year and 1.3% in 2013. Net absorption of retail space should be 10.3 million square feet this year and 20.1 million in 2013.
The apartment rental market, multifamily housing, i9s expected to see vacancy rates drop from 4.3% in the third quarter to 4.2% in the third quarter of 2013. Vacancy rates below 5% are generally considered a landlord’s market with demand justifying higher rents.
Areas with the lowest multifamily vacancy rates currently are Portland, Oregon at 2%, New York City and Minneapolis both at 2.2%, and New Haven, Connecticut and San Jose in California both at 2.4%.
Average apartment rent is likely to increase 4.1% in 2012 and another 4.4% next year. Multifamily net absorption should be 219,300 units this year and 236,600 in 2013.
This article was republished with permission from Property Wire.