Commercial real estate vacancy rates are flat, but modest improvements are expected over the coming year, according to the National Association of Realtors.
“Disappointing economic growth in recent months means a slower recovery for most of the commercial real estate sectors, although multifamily housing continues to benefit from pent-up demand resulting from an abnormal slowdown in household formation in recent years,” said Lawrence Yun, NAR chief economist. “A healthy recovery is already occurring in the multifamily sector, with average apartment rent expected to rise 2.5 percent this year and another 3.2 percent in 2012.”
Looking at commercial vacancy rates from the third quarter of this year to the third quarter of 2012, NAR forecasts vacancies to decline 0.3 percentage point in the office sector, 0.6 point in industrial real estate, 0.7 point in the retail sector and 0.9 percentage point in the multifamily rental market.
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. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.
Vacancy rates in the office sector are forecast to fall from 16.6 percent in the third quarter of this year to 16.3 percent in the third quarter of 2012. The markets with the lowest office vacancy rates currently are Washington, D.C., with a vacancy rate of 8.6 percent; New York City, at 10.1 percent; and Long Island, N.Y., 13.0 percent.
Office rents are expected to rise 0.8 percent in 2011 and another 1.5 percent next year. 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, is projected to be 28.3 million square feet this year.
Industrial vacancy rates are likely to decline from 12.7 percent in the current quarter to 12.1 percent in the third quarter of 2012. At present, the areas with the lowest industrial vacancy rates are Los Angeles, with a vacancy rate of 5.5 percent; Orange County, Calif., 6.2 percent; and Miami at 8.9 percent.
Annual industrial rent is expected decline 0.9 percent this year before rising 2.0 percent in 2012. Net absorption of industrial space nationally should be 47.8 million square feet this year.
Retail vacancy rates are projected to decline from 12.9 percent in the third quarter of this year to 12.2 percent in the third quarter of 2012. Markets with the lowest retail vacancy rates currently include San Francisco, 3.8 percent; Northern New Jersey, 6.1 percent; and three markets at 6.4 percent each: Los Angeles; Long Island, N.Y.; and San Jose, Calif.
Average retail rent is forecast to decline 0.4 percent this year, and then rise 0.7 percent in 2012. Net absorption of retail space is seen at 5.6 million square feet this year.
The apartment rental market – multifamily housing – should see vacancy rates drop from 5.5 percent in the current quarter to 4.6 percent in the third quarter of 2012. Apartment vacancies below 5 percent generally are considered a landlord’s market.
Areas with the lowest multifamily vacancy rates presently are Minneapolis, 2.5 percent; New York City, 2.8 percent; and Portland, Ore., at 2.9 percent. Multifamily net absorption is likely to be 237,700 units this year.
NAR: Multifamily sector showing 'healthy recovery'
August 26, 2011