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NAR Says Commercial Real Estate Recovery Slow, Despite Supports

Posted on 2 September, 2012 by Jodee Redmond

The National Association of Realtors (NAR) has released its quarterly commercial real estate forecast, and the information is very interesting. According to the Association, there are positive underlying factors supporting all major commercial real estate sectors, but a combination of tight financial lending practices and a slower job market in the second quarter are affecting growth in some areas.

According to the report, warehouse and industrial space is performing better overall. Trade with Canada, Brazil and Mexico is doing well. The situation with Asian nations, including China and India, is described as “robust,” while exports to Europe are down.

The commercial real estate cycle is being driven by shifts in market demand without an overabundance of new construction projects bringing units onto the market. Since 1999, the typical vacancy rate has been hovering around the 14.4 per cent mark in the office market. For industrial and retail properties, the vacancy rate has been slightly lower at 10.1 and 8.1 per cent, respectively.

Vacancy rates are declining slightly in all sectors, and rents for commercial properties are on the rise. A number of corporations are putting off making hiring decisions until after the upcoming presidential election, citing concerns over issues like health care and banking regulations. Instead, they are holding onto their cash reserves for the time being.

NAR Projections

The NAR Commercial Real Estate Outlook for the U.S. contained the following projections:

• Vacancy rates in office markets are expected to drop from 16.1 per cent in the third quarter of 2012 to 15.6 per cent in the third quarter of 2013.
• The market with the lowest office vacancy rate is Washington, D.C. (9.4 per cent), followed by New York City (10.0 per cent) and New Orleans (12.8 per cent).
• Industrial vacancy rates will decline from 10.7 per cent in the third quarter of 2012 to 10.5 per cent in the third quarter of 2013.
• Office rents will go up by 2 per cent in 2012 and 2.6 per cent in 2013. Net absorption of office space nationwide should reach 24.1 million square feet this year and 47.8 million in 2013.
• Retail vacancy rates are expected to drop 0.2 per cent to 10.7 per cent by the third quarter of 2013.
• The markets with the lowest retail vacancy rates nationwide are San Francisco (3.8 per cent), Fairfield County, Conn. (3.9 per cent), Long Island, NY, and Orange County, CA (5.3 per cent each).
• The average retail is expected to increase by 0.8 per cent this year and 1.3 per cent in 2013.
• Net absorption rate for all retail space is estimated to be 10.3 million square feet in 2012. This figure will almost double to 20.1 million in 2013.

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