Media Contact: Walter Molony / 202-383-1177 / Email
WASHINGTON (August 27, 2012) – Positive underlying fundamentals
continue to support all of the major commercial real estate sectors, but a
slowdown in job creation and ongoing tight loan availability has tempered
growth in some areas, according to the National Association of
Realtors® quarterly commercial real estate forecast. Lawrence Yun, NAR
chief economist, said 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.”
Although still
positive, dampened demand is slightly moderating rent growth with the exception
of the multifamily market. “Sharply higher demand for apartments is
causing rents to rise at faster rates,” Yun said. “A return to normal
household formation will mean even lower vacancy rates and higher rents in the
future.”
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,” Yun explained. “Multifamily is the only commercial sector with a
notable growth in new space, with some lending provided through government
loans.”
With the exception of
multifamily, vacancy rates remain above historic averages seen since 1999. Over
that timeframe the typical vacancy rate has been 14.4 percent for the office
market, 10.1 percent in industrial, 8.1 percent for retail and 5.8 percent in
multifamily.
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.
Many corporate decisions on spending and job hiring are on hold given
uncertainty over the upcoming elections, whether Congress will effectively
avoid a “fiscal cliff,” and unsettled issues such as health care and
banking/financial regulations.
"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.
NAR’s latest Commercial Real Estate Outlook1 offers projections for four major commercial sectors and
analyzes quarterly data in the office, industrial, retail and multifamily
markets. Historic data for metro areas were provided by REIS, Inc.,2 a source of commercial
real estate performance information.
Office Markets
Vacancy rates in the
office sector are expected to fall from an estimated 16.1 percent in the third
quarter to 15.6 percent 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 percent; New York City, at 10.0 percent; and New Orleans, 12.8 percent.
Office rent is
projected to increase 2.0 percent this year and 2.6 percent in 2013. Net
absorption of office space in the U.S., 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 Markets
Industrial vacancy
rates are forecast to decline from 10.7 percent in the third quarter of this
year to 10.5 percent in the third quarter of 2013.
The areas with the
lowest industrial vacancy rates currently are Orange County, Calif., with a
vacancy rate of 4.6 percent; Los Angeles, 4.8 percent; and Miami at 6.8
percent.
Annual industrial rent
is likely to rise 1.7 percent in 2012 and 2.4 percent 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 Markets
Retail vacancy rates
are projected to decline from 10.9 percent in the third quarter to 10.7 percent
in the third quarter of 2013.
Presently, markets
with the lowest retail vacancy rates include San Francisco, 3.8 percent;
Fairfield County, Conn., 3.9 percent; and Long Island, N.Y., and Orange County,
Calif., both at 5.3 percent.
Average retail rent is
forecast to rise 0.8 percent this year and 1.3 percent in 2013. Net absorption
of retail space should be 10.3 million square feet this year and 20.1 million in
2013.
Multifamily Markets
The apartment rental
market – multifamily housing – is expected to see vacancy rates drop from 4.3
percent in the third quarter to 4.2 percent in the third quarter of 2013;
vacancy rates below 5 percent generally are considered a landlord’s market with
demand justifying higher rents.
Areas with the lowest
multifamily vacancy rates currently are Portland, Ore., at 2.0 percent; New
York City and Minneapolis, both at 2.2 percent; and New Haven, Conn., and San
Jose, Calif., both at 2.4 percent.
Average apartment rent
is likely to increase 4.1 percent in 2012 and another 4.4 percent next
year. Multifamily net absorption should be 219,300 units this year and
236,600 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.
The NAR commercial
components include commercial members; commercial committees, subcommittees and
forums; commercial real estate boards and structures; and the NAR commercial
affiliate organizations – CCIM Institute, Institute of Real Estate Management,
Realtors® Land Institute, Society of Industrial and Office Realtors®, and
Counselors of Real Estate.
Approximately 78,000
NAR and institute affiliate members specialize in commercial brokerage and
related services, and an additional 232,000 members offer commercial real
estate services as a secondary business.
The National
Association of Realtors®, “The Voice for Real Estate,” is America’s largest
trade association, representing 1 million members involved in all aspects of
the residential and commercial real estate industries.
# # #
1Additional analysis will be posted under Economists’
Outlook in the Research blog section of Realtor.org in coming days at: http://economistsoutlook.blogs.realtor.org/.
2Beginning in the third quarter of 2011, NAR commercial
forecasts have been generated based on historical data provided by REIS, Inc.,
and do not correspond with prior historical information from previous
forecasts. This source permits coverage of more metro areas than were
previously covered.
The next commercial
real estate forecast and quarterly market report will be released on November
26 at 10:00 a.m. EST.
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