Commercial Real Estate Demand Grows as Markets Stabilize
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Demand for commercial real estate is on the rise due to the improving economy and job creation, according to the National Association of Realtors. “The economy should be adding between 1.5 million and 2 million jobs annually both this year and in 2012, with the unemployment rate falling to 8.0 percent by the end of next year,” says Lawrence Yun, NAR’s chief economist. “Given the minimal new supply in recent years, the rising demand means vacancy rates will be trending down. Individual markets are now stabilizing and in some cases rising.”
NAR’s latest Commercial Real Estate Outlook offers forecasts for the four major sectors.
Office
Office vacancy rates are expected to decline from 16.3 percent in 2Q11 to 15.3 percent in 2Q12. Honolulu and New York currently have the lowest vacancy rates at just below 9.0 percent. Office rents are expected to rise 4.6 percent through 2012. Net office absorption should reach 26.6 million square feet this year, though that figure includes the leasing of new space coming on the market.
Industrial
Industrial vacancy rates are expected to fall from 13.9 percent to 13.0 percent year-over-year. Los Angeles and Salt Lake City currently have the lowest rates, with vacancies in the 7.0 percent to 8.0 percent range. Industrial rent is projected to decline 1.5 percent in 2011 before bouncing back with a 2.0 percent increase in 2012.
Retail
Retail vacancy rates are projected to see the smallest YOY decline, from 13.1 percent in 2Q11 to 12.6 percent in 2Q12. San Jose, Calif., Honolulu, and Long Island, N.Y., have the lowest retail vacancy in the nation with rates below 8 percent. Average retail rent is projected to rise 0.7 percent in 2012 after a 1.4 percent decline this year.
Multifamily
Vacancy rates in the multifamily market are expected to drop from 5.8 percent in the current quarter to 4.7 percent in 2Q12. Multifamily vacancies currently are below 3.0 percent in Pittsburgh, San Jose, Calif., and Portland, Ore. Average apartment rent is projected to rise 7.7 percent through 2012.
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