Connect with us

Commercial Real Estate

Commercial real estate market slowly building momentum

According to the newly released forecast, commercial real estate is looking less bleak than it has in recent years with vacancy rates, rents, and absorption rates improving on a national scale this year and next.

Published

on

commercial real estate

commercial real estate

Commercial real estate building momentum

Similar to residential real estate, particularly the new home construction sector, commercial real estate has been particularly hard hit by the slumped economy, but is showing signs of having found its bottom. According to the National Association of Realtors’ (NAR’s) quarterly commercial real estate forecast, most major commercial real estate sectors show “gradually improving fundamentals” such as easy absorption of the relatively small amount of new inventory coming online, with a full recovery already in the multifamily market.

NAR’s Chief Economist, Dr. Lawrence Yun said the market has been slowly building momentum. “Job creation is the key to increasing demand in the commercial real estate sectors. The economy is expected to grow 2.5 percent next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise. The greatest friction that remains is a tight credit environment, notably for smaller properties.”

As with residential real estate, NAR forecasts rely on current conditions with the caveat that a fiscal cliff or tightening credit conditions could hamper any potential recovery.

Improving rent and vacancy rates across sectors

NAR forecasts that vacancy rates over the next 12 months will decline another 1.0 percentage point in the office market, 0.6 point in industrial, 0.2 point for retail and 0.1 point in multifamily. The trade group notes that multifamily has the tightest availability and is experiencing the strongest rent increases, well above the rate of inflation. For many months, multifamily has been the bright spot of the commercial real estate sector.

NAR projects that multifamily will drop from 4.0 percent nationally in the fourth quarter to 3.9 percent in the last quarter of 2013, making it a landlord’s market, justifying higher rents which are forecast to increase 4.1 percent in 2012 and another 2.6 percent in 2013. Multifamily net absorption is likely to be 219,700 units this year and 234,600 in 2013. Areas with the lowest multifamily vacancy rates currently are Portland, OR (2.1 percent), New York City, (2.2 percent), and Minneapolis (2.3 percent).

Vacancy rates in the office sector are projected to fall from an estimated 16.7 percent in the fourth quarter to 15.7 percent in the fourth quarter of 2013 as rent is forecast to rise 2.0 percent in 2012 and another 2.5 percent in 2013. Net absorption of office space is projected to total 21.7 million square feet in 2012 and 49.0 million next year. The markets with the lowest office vacancy rates in the fourth quarter are Washington, D.C. (9.6 percent), New York City (10.1 percent), and New Orleans (12.9 percent).

Retail vacancy rates are expected to ease from 10.8 percent in the fourth quarter to 10.6 percent in the fourth quarter of 2013, according to NAR with average rent expected to increase 0.8 percent this year and 1.4 percent next year. Net absorption of retail space is estimated to be 9.1 million square feet this year and 19.8 million in 2013. Presently, markets with the lowest retail vacancy rates include San Francisco (3.9 percent), Fairfield County, Conn. (3.9 percent), Long Island, NY (5.1 percent), and Orange County, CA (5.4 percent).

Lastly, NAR projects that industrial vacancy rates should decline from 10.1 percent in the fourth quarter of this year to 9.5 percent in the fourth quarter of 2013 as rent is forecast to rise 1.7 percent in 2012 and 2.2 percent next year. Net absorption of industrial space nationally will probably total 93.4 million square feet this year and 89.6 million in 2013. The areas with the lowest industrial vacancy rates currently are Orange County, CA (4.3 percent), Los Angeles (4.4 percent), and Miami (6.5 percent).

Getting past the fiscal cliff

“The primary factor holding back greater job creation has been uncertainty over regulations and associated costs,” Dr. Yun said. “With the elections behind us and Washington apparently resolved to prevent a fiscal cliff, it’s hoped that ambiguity over regulatory issues will clear relatively soon so employers can understand the rules of the game and the layout of the field.”

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.

Continue Reading
Advertisement
15 Comments

15 Comments

  1. Lahore Real Estate

    November 27, 2012 at 6:10 am

    Due to economic issues facing industry, commercial real estate market is sluggish this time but housing prices and sales are fast because of competition of some buyers and investors with their rival parties in real estate business and commercial real estate might remain same in next year.

  2. Lahore Real Estate

    November 27, 2012 at 6:15 am

    Due to economic issues facing industry, commercial real estate market is sluggish this time but housing prices and sales are fast because of competition of some buyers and investors with their rival parties in real estate business and commercial real estate might remain same in next year.
    Regards,
    marketing manager
    http://www.zameen.com/

  3. 4bsfamily

    December 3, 2012 at 11:47 am

    We are seeing the improvement locally in Bradenton Florida. We have just made an investment in purchasing an office building for us rather than renting.

  4. tlcdusek

    December 3, 2012 at 1:22 pm

    There seems to be more interest, in the last couple of months, in a commercial property that I have listed. I am so hoping that the commercial will pick up in 2013.

  5. LOram

    December 3, 2012 at 1:43 pm

    We are seeing an increase in commercial construction in our area – Fort Worth, TX.  Hopefully, we will see continued improvement as businesses feel more confident and large organizations, such as hospitals, complete construction.

  6. ireneborz

    December 3, 2012 at 1:56 pm

    I consider commercial real estate as  a  very potential field for me as a Broker and for my Company in general and would be happy to earn NAR professional designations and certifications.

  7. iuliaharper

    December 3, 2012 at 2:13 pm

    Here in North Fulton county GA the commercial real estate seems to be coming back. You do not see as many empty office/retail spaces and more commercial new construction buildings are popping up. Just as we need the residential market to stabilize hopefully the commercial market will bounce back too.

  8. WayneADavisCrs

    December 8, 2012 at 7:47 pm

    With retail prices down, I have experienced small businesses being able to move into larger space or even able to buy property. The same property would not have been affordable to them three or four years ago.

  9. Kay_Dangerfield

    December 10, 2012 at 11:00 pm

    Leasing is picking up in my area, Greenwood, SC. Sales are still sluggish right now, but it seems to be improving. In Laurens, SC there is not as much activity, but it should be coming since Laurens has two interstates through it,  I-385 and I-26. We have many great retail spots available in Laurens. I hope to get those filled or sold soon!

Leave a Reply

Your email address will not be published. Required fields are marked *

Commercial Real Estate

Pace of commercial real estate improvement is slowing

(Commercial Real Estate) The commercial real estate sector has improved substantially since the economy crashed, but is now showing signs of slowing, but data does not indicate lost ground.

Published

on

commercial real estate

commercial real estate

Commercial real estate outlook is positive

According to the National Association of Realtors’ (NAR) quarterly forecast, commercial real estate is continuing to improve, but the pace is slowing.

Dr. Lawrence Yun, NAR chief economist, said that fundamentals are still on an uptrend. “Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies appear hesitant to add new space,” he said.

bar
“Office demand is expected to see only slow and gradual improvement,” Dr. Yun added. “Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners.”

Forecasting the future

Overall, national vacancy rates in the coming year are forecast to drop 0.2 percentage point in the office sector (the sector with the worst vacancy rates) to 15.6 percent in the first quarter of 2015.

Vacancy rates are projected to fall 0.1 point in industrial to 8.9 percent, and 0.3 point for retail real estate to 9.9 percent.

With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent to 4.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

Rental rates for various sectors

Office rents are projected to increase 2.3 percent in 2014 and 3.2 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 likely to total 44.6 million square feet this year and 50.0 million in 2015.

Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 106.1 million square feet in 2014 and 110.6 million next year.

Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year. Net absorption of retail space is likely to total 14.6 million square feet this year and 20.9 million in 2015.

Average apartment rents are projected to rise 4.3 percent this year and 3.5 percent in 2015. Multifamily net absorption is expected to total 204,900 units in 2014 and 112,500 next year.

Regional performance varies

The markets with the lowest office vacancy rates in the first quarter are New York City, with a vacancy rate of 9.5 percent; Washington, D.C., at 10.2 percent; Little Rock, Ark., 11.6 percent; Birmingham, Ala., 12.7 percent; and San Francisco and Nashville, Tenn., at 12.8 percent each.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.7 percent; Los Angeles, 3.8 percent; Miami, 5.8 percent; Seattle at 5.9 percent; and San Riverside/Bernardino, Calif., at 6.1 percent.

Markets with the lowest retail vacancy rates include San Francisco, at 3.1 percent; Fairfield County, Conn., 3.8 percent; Long Island, N.Y., 4.8 percent; San Jose, Calif., 5.2 percent; and Northern New Jersey and Orange County, Calif., at 5.3 percent each.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.1 percent; Minneapolis and New York City, 2.3 percent; and Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.

Continue Reading

Commercial Real Estate

Should you buy or lease office space? 5 questions to consider

When considering whether you should lease your office space or buy, an industry expert outlines the questions you should ask yourself.

Published

on

office leadership

office leadership

Should you buy or lease an office space?

Many people set up shop and lease office space, assuming this is their best, and often only option, but there are some instances where buying office space is a better option. Many blindly make this decision based on a gut feeling, and we’re not saying that is a bad thing, we’re saying that in addition to that instinct, these five questions should be asked when considering whether you should lease or buy an office space.

Stan Snipes, senior advisor, Sperry Van Ness Investec Realty of Nashville notes that the two options depend on several variables, as he outlines below:

1. Is your business well-established?

If your business is still in the startup phase, I rarely recommend buying. During the next 5 to 10 years you’ll experience employee count fluctuations, client and customer oscillations and even business direction and strategy adjustments. That is, you’ll need to be flexible, not tied to a certain space. Additionally, any leftover capital should most likely be recycled back into your budding startup. You don’t want to stretch yourself too thin.

The only exception that applies some of the time — not every time — is if your startup is in the technology space. Oftentimes tech employees can work remotely, or the technology is automated and won’t require more employees in the future. Additionally, clients of many tech startups can successfully access the company’s offering without visiting a physical office space.

2. Will you endanger your business with a property purchase?

Yes, buying can be a great investment and add a source of revenue, but even well-established business owners need to think about the stress that buying a property can put on their bottom line. Oftentimes your time and money is best spent on what you do best, running your enterprise. If buying means you won’t be able to focus essential resources to your first priority, your business, then you might want to hold off on buying.

Further, because commercial real estate can be a great investment, business owners are sometimes so eager to get in the game that they sell off portions of their business to finance the purchase. This is a bad idea. You should not let real estate decisions determine how you run your business. You’ve worked long and hard to build a successful company — don’t give it away. Another deal with always come along.

3. Do you have heavy, difficult-to-move equipment?

If you have machinery or specialized equipment that make it difficult for you to move, buying may be a great option for you. Two primary reasons: 1.) Lugging dense equipment from leased space to leased space is annoying, cumbersome and costly.

Plus, you increase the chances of damaging it every time you move. 2.) When a landlord knows it’s difficult for you to relocate, he or she is holding the cards when it’s time to renew your lease. If your lease doesn’t have a stipulation to remediate this, leasing office space will cost you more money than it should. More often than not, buying a custom space for your specialized equipment is the way to go.

4. Does your location affect employees or clients?

If attracting and maintaining top-notch employees means securing office space in your city’s prime business district, finding the perfect space to buy may be difficult. Why? Prime business districts usually have lower vacancy rates, which typically means higher prices plus fewer properties to choose from. Anytime you’re limited to a narrow location, you risk not landing the best deal. This doesn’t mean don’t buy, just understand what you’re up against from the onset.

The other issue you may face in buying location-specific space is when your customers or clients depend on your position for convenience. This is a challenge when and if your city’s submarkets are in transition. The trendy spot of the last five years, may not be in vogue five years from now. A lease allows flexibility to move where your customer and clients need you to be.

5. Are you prepared to be a landlord?

There’s a lot of maintenance that goes along with owning a building. Will you have the ability to hire a maintenance crew or will you tend the bathrooms, burnt out light bulbs and overflowing trash bins yourself?

Furthermore, many landlords have easy access to financing that could benefit you in the form of a tenant improvement package. Even though you may have capital to buy your building, can you afford to build it out the way you want to? The cost of ownership is sometimes underestimated. Make sure you’ve considered all of the possible expenses that go along with buying your office space.

Continue Reading

Commercial Real Estate

Commercial real estate improving modestly, little change to come

As commercial real estate improves across all sectors, the gains have been modest and NAR predicts they will continue to inch forward.

Published

on

detroit

detroit

Commercial real estate sector is improving

According to the National Association of Realtors’ (NAR) quarterly commercial real estate forecast, commercial real estate is improving modestly, with little change seen for the near future. Dr. Lawrence Yun, NAR’s Chief Economist said in a statement, “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

NAR reports that leasing activity rose 2.0 percent in the third quarter compared to the second, and sales levels are higher than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets. Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

Retail vacancy rates should be going down

Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014. Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily construction will meet demand

Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

Office rents should be going up

Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014. Office rents should increase 2.4 percent this year and 2.5 percent in 2014. 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 seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial vacancies on the decline

Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014. Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

Continue Reading
Advertisement

Our Great Parnters

The
American Genius
news neatly in your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Emerging Stories