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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.

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.

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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.”

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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.

9 Comments

9 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!

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