Occupancy rates in the office, retail, warehouse and multifamily real estate markets can be expected to improve gradually over the next two years, according to the National Association of Realtors.

The NAR analysis covers a wide range of statistics and market rankings for the major commercial sectors in 54 markets tracked, including the office, retail, warehouse and multifamily markets, as well as market sector forecasts. It is produced with data provided by Property & Portfolio Research.

All commercial market sectors showed net positive absorption of space in the third quarter, which includes leasing of new space coming on the market as well as space in existing properties. Employment gains helped the office market, retail benefited from the rise in consumer spending, warehouse space enjoyed higher demand from rising inventories and strong household formation increased the demand for multifamily housing.

Net absorption of office space is projected to rise to 101.8 million square feet next year from only 32 million in 2003. Office vacancy rates in the 54 markets tracked should decline to 16.8 percent in 2004 from an estimated 17.9 percent this year. Average office rents are expected to rise 0.2 percent next year and 4.4 percent in 2005 after dropping 6.4 percent this year.

In the retail sector, net absorption is forecast at 109.1 million square feet for 2004 after reaching an estimated 85.9 million this year. The average vacancy rate for retail space in the 54 metro markets is projected to drop to 12.0 percent next year compared with 12.7 percent for 2003. Retail rents should rise by 1.8 percent in 2004 and 1.4 percent in 2005 after rising only 0.3 percent this year.

Warehouse net absorption is projected at 98.3 million square feet in 2004, up from an expected 70.6 million this year, while the national vacancy rate is expected to drop to 9.6 percent next year from 10.5 percent in 2003. After declining an average of 3.3 percent this year, warehouse rents are seen to slip another 0.6 percent in 2004. Rents are projected to increase 2 percent in 2005 with net absorption of warehouse space forecast to rise to 124.2 million square feet.

The apartment rental market - multifamily housing - should experience a net absorption of 155,300 units next year, up from 118,200 projected for 2003. The average vacancy rate is expected to drop to 6.8 percent in 2004 from 7.2 percent this year, with average rent forecast to hold even in 2004 before rising 2.4 percent in 2005 following a decline of 2.5 percent this year.