Vacancy rates in the commercial real estate market are expected to continue declining throughout the year and into next year, according to the quarterly Commercial Real Estate Market Survey published by the National Association of Realtors (NAR).
NAR forecasts commercial vacancy rates over the next year to decline 0.4 percentage point in the office sector, 0.8 point in industrial real estate, 0.9 point in the retail sector and 0.2 percentage point in the multifamily rental market. Vacancy rates in the office sector are projected to fall from 16.4% in the current quarter to 16% in the first quarter of 2013. The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.5%; New York City, at 10%; and New Orleans with 12.4%. NAR also forecasts that office rents should increase 1.9% this year and 2.4% in 2013.
Industrial vacancy rates are likely to decline from 11.7% in the first quarter of this year to 10.9% in the first quarter of 2013. The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.8%; Los Angeles at 4.9%; and Miami at 7.6%. The annual industrial rent is expected to rise 1.8% in 2012 and 2.3% next year.
Retail vacancy rates are forecast to decline from 11.9% in the current quarter to 11% in the first quarter of 2013. Markets with the lowest retail vacancy rates include San Francisco at 3.6%; Fairfield County, Conn., at 5.1%; and Long Island, N.Y., at 5.4%. The average retail rent should rise 0.7% this year and 1.2% in 2013.
The multifamily housing market is likely to see vacancy rates drop from 4.7% in the first quarter to 4.5% in the first quarter of 2013. Multifamily vacancy rates below 5% generally are considered a landlord's market, with demand justifying higher rents. Areas with the lowest multifamily vacancy rates currently are New York City at 1.8%; Minneapolis and Portland, Ore., each at 2.5%; and San Jose, Calif., at 2.7%. The average apartment rent is expected to increase 3.8% this year and another 4% next year. Multifamily net absorption is forecast at 209,900 units this year and 223,600 in 2013.
‘Sustained job creation is benefiting commercial real estate sectors by increasing demand for space," says Lawrence Yun, NAR's chief economist. ‘Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market, where rents are rising the fastest.’