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Commercial Lending
There is Good news about the economy and fundamentals in commercial real estate per the May 2012 National Association of Realtors (NAR) Commercial Real Estate Forecast. Significant job growth, full recovery and growth in the apartment sector lead the report.
The report shows that ongoing job creation and a steady increase in consumer spending is increasing an underlying demand for commercial real estate space which will result in a pattern of gradually declining commercial vacancy rates and modest rent growth.
Jobs Creation
Stronger job growth is certainly needed, but 1.7 million new jobs were added in 2011 and the trend is expected to continue. Multifamily housing has been affected the most by the recent job growth, where newly formed households have increased the demand for apartment rentals. The Multifamily sector has the lowest vacancy rates and strongest rent growth of commercial real estate sectors and is attracting the most investment at this time.
Office Space
Vacancy rates 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. Office rents should increase 2.0 percent this year and 2.5 percent in 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. Net absorption of office space in the U.S.is forecast at 24.7 million square feet in 2012 and 48.0 million in 2013.
Retail Markets
Retail vacancy rates are forecast to decline from 10.7 percent in the second quarter of 2013. 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
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.The areas with the lowest industrial vacancy rates currently are Orange County, California, 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 in 2013. Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013.
Multifamily Boom
The previous pent-up demand for apartment housing is fueling the boom in 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. A 5 percent vacancy rate for Apartments is 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 in 2013. Such rent increases will raise the core consumer inflation rate and The Fed may be forced to raise interest rates in 2013. Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.
Credits to Robert M. Stout, CRI, President and CEO of Q10 Capital, LLC
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