Multifamily Leads the Way in 2011

A steadily improving economy and an increase in household formation will bolster the multifamily sector and contribute to a 1 percent to 2 percent increase in rents, according to Lawrence Yun, the National Association of Realtors’ chief economist in the most-recent NAR Commercial Real Estate Outlook. The outlook for office, retail, and industrial markets is slightly less optimistic but these sectors should continue to stabilize in 2011, according to the report.

"The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out," Yun says.

The report includes 2011 predictions for four major property types:

• Office - Nationwide vacancy is projected to drop slightly to 16.4 percent in 4Q11 from 16.7 percent in 4Q10. Rents are expected to decline by 1.6 percent year-over-year.
• Industrial – Vacancies are projected to drop 0.7 percent to 13.2 percent in 4Q11. Rent is likely to slide another 3.4 percent.
• Retail – Little change in rent or vacancy is expected. Rent is projected to decrease 0.3 percent, a welcome change from the 3.4 decrease in 2010. Retail vacancy should drop to 13.0 percent from 13.1 in 4Q10.
• Multifamily – By 4Q11, vacancies should drop by 0.6 percent to 5.8 percent, while rents are expected to see a 1.4 percent increase over the same period.