The May 2012 NAR Commercial Real Estate Forecast published today brings a bumper crop of good news about the economy and fundamentals in commercial real estate in all its sectors. Significant job growth, full recovery and growth in the apartment sector lead the report.
NAR Chief Economist Lawrence Yun points to new jobs as driving the recovery: “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.”
Jobs Coming Back In The Millions
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.”
In all areas of commercial real estate, indicators are in the green, according to the forecast:
Office Space Vacancy Projected To Fall
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 presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.0 percent; and New Orleans, 12.6 percent.
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.
Retail Markets: Rents and Absorption Up
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 include San Francisco, 3.7 percent; Fairfield County, Conn., at 4.0 percent; and Long Island, N.Y., at 5.0 percent.
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.
Industrial Markets Manufacturing Demand
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 currently are Orange County, Calif., with a vacancy rate of 4.7 percent; Los Angeles, 5.0 percent; and Miami at 7.2 percent.
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
A Boom In Multifamily
The numbers here seem to be the other shoe dropping concerning the pent-up demand for apartment housing we wrote about here at The Source in January:
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 currently are New York City, 2.1 percent; Portland, Ore., at 2.3 percent; and Minneapolis at 2.4 percent.
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.