US Commercial Real Estate Market Improving

The National Association of Realtors (NAR) is giving a thumbs up for improved fundamentals in the U.S. commercial property market. The positive marks are predicated on the avoidance …

The National Association of Realtors (NAR) is giving a thumbs up for improved fundamentals in the U.S. commercial property market. The positive marks are predicated on the avoidance of the fiscal cliff and modest job creation that many hope will come with the recovering economy. Vacancy rates are expected to decline while build rates should grow to accommodate the increased demand. NAR specialists say the expected growth will be slow, however, with multifamily housing leading the charge. The office market is also expected to enter the new year with gains behind it and more expected ahead. For more on this continue reading the following article from Property Wire.

Most of the major commercial real estate sectors in the United States show gradually improving fundamentals, according to the latest property forecast report from the National Association of Realtors.

They are easily absorbing the relatively small amount of new space that is coming online, with a full recovery already in the multifamily market, it says, as market slowly build momentum.

Job creation is the key to increasing demand in the commercial real estate sectors, according to Lawrence Yun, NAR chief economist. ‘The economy is expected to grow 2.5% next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise. The greatest friction that remains is a tight credit environment, notably for smaller properties,’ he explained.

Vacancy rates over the next four quarters are forecast to decline 1% in the office market, 0.6% in industrial, 0.2% in retail and 0.1% in multifamily. However, NAR points out that multifamily has the tightest availability and is experiencing the strongest rent increases, well above the rate of inflation.

‘The primary factor holding back greater job creation has been uncertainty over regulations and associated costs. With the elections behind us and Washington apparently resolved to prevent a fiscal cliff, it’s hoped that ambiguity over regulatory issues will clear relatively soon so employers can understand the rules of the game and the layout of the field,’ added Yun.

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NAR’s latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets.

Vacancy rates in the office sector are projected to fall from an estimated 16.7% in the fourth quarter to 15.7% in the fourth quarter of 2013. The markets with the lowest office vacancy rates presently are Washington, D.C. with a vacancy rate of 9.6%, New York City at 10.1% and New Orleans at 12.9%.

Office rent is expected to increase 2% this year and 2.5% 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 likely to total 21.7 million square feet in 2012 and 49.0 million next year.

NAR says that industrial vacancy rates should decline from 10.1% in the fourth quarter of this year to 9.5% in the fourth quarter of 2013. The areas with the lowest industrial vacancy rates currently are Orange County, California with a vacancy rate of 4.3%, Los Angeles at 4.4% and Miami at 6.5%.

Annual industrial rent is forecast to rise 1.7% in 2012 and 2.2% next year. Net absorption of industrial space nationally will probably total 93.4 million square feet this year and 89.6 million in 2013.

Retail vacancy rates are expected to ease from 10.8% in the fourth quarter to 10.6% in the fourth quarter of 2013. Presently, markets with the lowest retail vacancy rates include San Francisco and Fairfield County, Connecticut, both at 3.9%, Long Island, New York at 5.1% and Orange County, California, at 5.4%.

Average retail rent should increase 0.8% this year and 1.4% in 2013. Net absorption of retail space is estimated to be 9.1 million square feet this year and 19.8 million in 2013.

The apartment rental market, known as multifamily housing, is projected to see vacancy rates decline from 4% in the fourth quarter to 3.9% in the fourth quarter of 2013. Vacancy rates below 5% are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are Portland, Oregon, at 2.1%, New York City at 2.2% and Minneapolis at 2.3%.

Average apartment rent should increase 4.1% in 2012 and another 4.6% next year. Multifamily net absorption is likely to be 219,700 units this year and 234,600 in 2013.

The Commercial Real Estate Outlook is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

This article was republished with permission from Property Wire.


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