Shaking off a prolonged impact from the recession, fundamentals are gradually improving in all of the major commercial real estate sectors, according to the National Association of REALTORS® quarterly commercial real estate forecast. The apartment rental sector has fully recovered and is growing.
The findings also are confirmed in NAR’s recent quarterly Commercial Real Estate Market Survey, which collects data from members about market activity.
Lawrence Yun, NAR chief economist, said new jobs are the key. “Ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending,” he said. “The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth.”
Yun expects the economy to add 2 to 2.5 million jobs both this year and in 2013, on the heels of 1.7 million new jobs in 2011, assuming a new federal budget is passed before the end of the year. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”
Rising apartment rents also are having a positive impact on home sales because many long-time renters now view homeownership as a better long-term option, Yun noted.
A large problem remains for purchases of commercial property priced under $2.5 million. “Our recent commercial lending survey shows that there is very little capital available for small business, which is significantly impacting commercial real estate transactions, although funding is less restrictive for bigger properties.”
NAR’s latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.
Vacancy rates in the office sector are projected to fall from 16.3 percent in the second quarter of this year to 16.0 percent in the second quarter of 2013.
The markets with the lowest office vacancy rates:
Washington, D.C.: 9.3% vacancy rate
New York City: 10%
New Orleans: 12.6%
Office rents should increase 2.0 percent this year and 2.5 percent in 2013. 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 forecast at 24.7 million square feet in 2012 and 48.0 million next year.
Industrial vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013.
The areas with the lowest industrial vacancy rates:
Orange County, Calif.: 4.7% vacancy rate
Los Angeles: 5%
Annual industrial rent is expected to rise 1.6 percent in 2012 and 2.4 percent next year. Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013.
Retail vacancy rates are forecast to decline from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013.
Presently, markets with the lowest retail vacancy rates:
San Francisco: 3.7% vacancy rate
Fairfield County, Conn.: 4%
Long Island, N.Y.: 5%
Average retail rent should rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.
The apartment rental market – multifamily housing – is likely to see vacancy rates drop from 4.5 percent in the second quarter to 4.3 percent in the second quarter of 2013; apartment vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.
Areas with the lowest multifamily vacancy rates:
New York City: 2.1%
Portland, Ore.: 2.3%
After rising 2.2 percent last year, average apartment rent is expected to increase 4.0 percent in 2012 and another 4.1 percent next year. “Such a rent increase will raise the core consumer inflation rate. The Federal Reserve, in turn, may be forced to raise interest rates, possibly as early as late 2013.”
Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.
The Commercial Real Estate Outlookis published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR. The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, REALTORS® Land Institute, Society of Industrial and Office REALTORS®, and Counselors of Real Estate. Approximately 78,000 NAR and institute affiliate members specialize in commercial brokerage and related services, and an additional 232,000 members offer commercial real estate services as a secondary business.
Bigger is No Longer Better in Housing, Study Says
Aspiring home owners are thinking small with their purchase, a trend that is expected to grow in the coming years, according to a new report — “The Shifting Nature of U.S. Housing Demand” — by the Demand Institute, a division of the U.S. Conference Board.
“Many [buyers] will scale back their housing aspirations,” according to the report. The report projects that the average size of a new home will go from 2,500 square feet during the housing boom to 2,150 square feet by 2015. That is about the same size of homes in the mid-1990s before the McMansion trend took hold.
The report suggests that other businesses may see a benefit from this expected decrease in square footage in homes, too.
For example, the report suggests that home owners likely will turn to commercial storage spaces more instead of having big basements or attics to store their treasures. Also, more home owners may opt for a gym membership over devoting square footage in their home to a workout room. Also, as kitchens get smaller and have fewer cupboards, home owners may have to make more frequent trips to the grocery store, which could be a perk for the retail industry.
Source: “Housing’s Future: Renting and Downsizing,” The Wall Street Journal (May 15, 2012)
Top 15 Hot-Spots for Recent College Grads
College grads say that relocating for more employment opportunities is their main motivation for moving this year, according to a recent Apartments.com survey.
So where are the best places for them to relocate to? Apartments.com and CareerBuilder for the fifth year in a row have compiled a list ranking the top 15 best cities for recent college graduates, identifying the places that offer some of the best opportunities for employment and quality of life for young professionals.
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