WASHINGTON, D.C. – The National Association of Realtors projects a positive trend in commercial real estate next year, after seeing stagnation this year.
For those living in apartments or running a store, that could mean higher rents in the years to come.
“Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant’s market,” NAR chief economist Lawrence Yun said in a statement. “However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year.”
The commercial real estate market is expected to follow the general economy. “Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn’t ramp up, rent growth could potentially approach 7 percent over the next two years.”
By the fourth quarter of 2012, NAR projects vacancies to go down by 0.6 percentage points in the office sector, 0.4 points in the industrial real estate market, 0.8 points in the retail sector and 0.7 percentage points in the multifamily rental market.
The Society of Industrial and Office Realtors’ Commercial Real Estate Index, an attitudinal survey of 231 local market experts,1 shows the broad industrial and office markets were relatively flat in the third quarter, in step with macroeconomic trends. The national economy continues to affect the sectors, with 92 percent of respondents reporting the economy is having a negative impact on their local market.
Construction activity remains low, with 96 percent of respondents indicating that it is lower than normal; 88 percent said it is a buyers’ market in terms of development acquisitions. Prices are below construction costs in 83 percent of markets.
NAR’s latest Commercial Real Estate Outlook offers projections in the office, industrial, retail and multifamily markets.
Vacancy rates in the office sector are expected to fall from 16.7 percent in the current quarter to 16.1 percent in the fourth quarter of 2012.
The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.3 percent; and New Orleans, 12.8 percent.
After rising 1.4 percent in 2011, office rents are forecast to increase another 1.7 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 20.2 million square feet this year and 31.7 million in 2012.
Industrial vacancy rates are projected to decline from 12.3 percent in the fourth quarter of this year to 11.7 percent in the fourth quarter of 2012.
The areas with the lowest industrial vacancy rates currently are Los Angeles, with a vacancy rate of 5.2 percent; Orange County, Calif., 5.7 percent; and Miami at 8.4 percent.
Annual industrial rent should decline 0.5 percent this year before rising 1.8 percent in 2012. Net absorption of industrial space nationally should be 62.0 million square feet this year and 41.2 million in 2012.
Retail vacancy rates are likely to decline from 12.6 percent in the current quarter to 11.8 percent in the fourth quarter of 2012.
Presently, markets with the lowest retail vacancy rates include San Francisco ( 3.7 percent), Long Island, N.Y. and Northern New Jersey (5.7 percent each); and San Jose, Calif. (6.0 percent).
Average retail rent is projected to slip 0.2 percent this year, and then rise 0.7 percent in 2012. Net absorption of retail space is seen at 1.2 million square feet this year and 13.5 million in 2012, according to the survey.
The apartment rental market – multifamily housing – is expected to see vacancy rates drop from 5.0 percent in the fourth quarter to 4.3 percent in the fourth quarter of 2012; multifamily 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 Minneapolis, 2.4 percent; New York City, 2.7 percent; and Portland, Ore., at 2.8 percent.
Average apartment rent is projected to rise 2.5 percent this year and another 3.5 percent in 2012. Multifamily net absorption is likely to be 238,400 units this year and 126,600 in 2012.
Approximately 79,000 NAR and institute affiliate members specialize in commercial brokerage services, and an additional 171,000 members offer commercial real estate as a secondary business.