All four sectors of commercial real estate continue to experience growth, but at different rates, the
National Association of Realtors® (NAR) said today. The Association’s quarterly
commercial real estate forecast sees vacancy rates for commercial property
decreasing by 0.2 percentage point over the next year, but office vacancy rates
are unlikely to match the improvement in the retail and industrial sectors
where vacancies are expected to fall by 0.6 point. Multifamily properties are already
experiencing low vacancies with demand supporting rapid rent increases and that
is likely to continue.
Lawrence Yun, NAR chief economist said, “Office vacancies haven’t declined
much because total jobs today are still below that of the pre-recession level
in 2007, but rising international trade is boosting demand for warehouse space. Consumer spending has been favorable for the
retail market, and rising construction is keeping apartment availability fairly
even, though at low vacancy levels. That, in turn, is pushing apartment
rents to rise twice as fast as broad consumer prices and average wage growth.”
housing is expected to see an increase in vacancy rates of only 0.1 percentage
point, moving from 3.9 percent in the third quarter of 2013 to 4.0 percent in
the same quarter next year with construction rising to meet increased demand. Net
absorption of multifamily housing is projected at 266,700 units in 2013 and
259,800 units in 2014. NAR said that a
vacancy rate below 5 percent is considered a landlord’s market where demand
justifies higher rents. Consequently
average apartment rents are expected to rise 4.0 percent in both 2013 and 2014.
Areas with the
lowest multifamily vacancy rates currently are New Haven at 1.9 percent;
Syracuse, 2.0 percent; New York City and San Diego, at 2.1 percent each; and
Minneapolis, 2.2 percent.
Vacancy rates in the office sector
are expected to decline from a projected 15.7 percent in the third quarter to
15.5 percent in the third quarter of 2014.
This translates to net absorption of office space, including new space
coming on line as well as existing space of 30.1 million square feet and 41.6
million square feet respectively this year and next. Rents for office space are expected to
increase about 2.5 percent in 2013 and 2.8 percent in 2014.
Currently the best markets for
office space are Washington, D.C., with a vacancy rate of 9.7 percent; New York
City, at 9.8 percent; Little Rock., 12.1 percent; and Birmingham, 12.4 percent.
Industrial vacancy rates are likely
to fall from 9.3 percent in the third quarter of this year to 8.7 percent in
the third quarter of 2014. Net absorption of industrial space nationally is
anticipated at 102.0 million square feet in 2013 and 105.8 million in
2014. Rents increases are anticipated at
2.4 percent this year and 2.6 percent next year. .
Perhaps reflecting Yun’s analysis
that international trade is bolstering the industrial sector, the lowest
industrial vacancy rates are all in coastal areas; Orange County, California, 3.8
percent; Los Angeles, 4.0 percent; Miami, 5.9 percent; and Seattle 6.4 percent.
Retail vacancy rates are forecast to
decline from 10.6 percent in the third quarter of this year to 10.0 percent in
the third quarter of 2014 with net absorption of retail space projected at 11.8
million square feet in 2013 and 18.2 million in 2014. Rents should increase 1.5
percent and 2.3 percent in the next two years.
The healthiest retail markets include
San Francisco with 3.9 percent vacancies, Fairfield County, Connecticut at 4.1
percent; Long Island, 5.0 percent; and Orange County, California at 5.5