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Commercial Vacancy Rates Improving and Rents Firming

In its quarterly Commercial Real Estate Market survey, the National Association of Realtors predicts a widespread fall in vacancy rates for nearly all property types. In the report, the association noted that all major commercial sectors are seeing improved fundamentals, but multi-family continues to lead the way. The NAR is forecasting a 0.4 percent decline in office vacancies, 0.8 in industrial, 0.9 percent in retail and 0.2 percent in the multi-family rental market through the end of 2012.

“Sustained job creation is benefiting commercial real estate sectors by increasing demand for space,” Lawrence Yun, chief economist for the NAR, said. “Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest.”

The report also found that, industry-wide, sales prices declined 10 percent on a year-over-year basis — as measured at the end of 2011, but leasing activity advanced 2 percent from the third to the fourth quarter of last year. In the same timeframe, rental rates declined by 4 percent.

Industrial vacancy rates are likely to decline from 11.7 percent in the first quarter of this year to 10.9 percent in the first quarter of 2013.Annual industrial rent is expected to rise 1.8 percent in 2012 and 2.3 percent next year. Net absorption of industrial space nationally is seen at 40.6 million square feet this year and 57.7 million in 2013.

Retail vacancy rates are forecast to decline from 11.9 percent in the current quarter to 11.0 percent in the first quarter of 2013. Average retail rent should rise 0.7 percent this year and 1.2 percent in 2013. Net absorption of retail space is projected at 9.9 million square feet this year and 23.9 million in 2013.

The multi-family sector is likely to see vacancy rates drop from 4.7 percent in the first quarter to 4.5 percent in the first quarter of 2013.Multi-family vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents. After rising 2.2 percent last year, average apartment rent is expected to increase 3.8 percent in 2012 and another 4.0 percent next year. Multi-family net absorption is forecast at 209,900 units this year and 223,600 in 2013.

“Household formation appears to be rising from pent-up demand,” Yun said. “The tight apartment market should encourage more apartment construction. Otherwise, rent increases could further accelerate in the near-to-intermediate term.”

Reprint from Commercial Property Executive       By Nicholas Ziegler, News Editor

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