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All commercial real estate sectors making a comeback

After years of being hard hit by the recession, all sectors of the commercial real estate industry are recovering, says the National Association of Realtors who projects rents will continue rising for all sectors as vacancies continue to fall.

New commercial data showing signs of life

According to the National Association of Realtors’ (NAR’s) quarterly commercial real estate forecast, fundamentals are gradually improving in all of the major commercial real estate sectors, which the trade group calls a “shaking off” of a prolonged impact from the recession. NAR reports that the apartment rental sector has fully recovered and is growing, while other sectors are beginning to regain some ground lost during the economic crisis.

NAR says jobs are responsible for the demand

Dr. Lawrence Yun, NAR chief economist, said new jobs are the key, projecting 2.0 to 2.5 million jobs will be added by 2013, assuming the new federal budget is passed before the end of the year. Dr. Yun says ongoing job creation is fueling the underlying demand for commercial real estate space, assisted by growing consumer spending.

“The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth,” said Dr. Yun. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”

No capital available for small business

A large problem remains for purchases of commercial property priced under $2.5 million. Dr. Yun said, “Our recent commercial lending survey shows that there is very little capital available for small business, which is significantly impacting commercial real estate transactions, although funding is less restrictive for bigger properties.”

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Performance of each market

Multifamily – the forecast notes vacancy rates will likely drop 0.2 percent over the next year to 4.3 percent, and with vacancy rates below 5 percent, NAR notes it becomes a landlord’s market with demand justifying higher rents. Increasing 2.2 percent last year, NAR projects rents will increase 4.0 percent in 2012 and another 4.1 percent in 2013. Net absorption is forecast at 215,900 units this year and 230,300 in 2013.

Office – the vacancy rates are projected to fall to 16.0 percent in the second quarter of 2013, down from 16.3 percent in the second quarter of 2012, while rents are projected to rise 2.0 percent in 2012 and 2.5 percent in 2013. NAR is forecasting net absorption of office space at 24.7 million square feet in 2012 and 48.0 million next year.

Industrial – vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013 and rents are expected to rise 1.6 percent in 2012 and 2.4 percent next year. Net absorption of industrial space is seen at 44.1 million square feet this year and 62.4 million in 2013.

Retail – NAR projects vacancy rates will fall from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013 and rent should rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.

Commercial Real Estate Quarterly Market Survey

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

1 Comment

1 Comment

  1. jearuiz0

    September 26, 2012 at 12:33 am

    this is nice

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