NAR's Quarterly Report Reflects CRE Slowdown Through Year's End
The impact of upcoming elections, the U.S.' fiscal status and unsettled issues for health care and financial regulations are taking their toll on the commercial real estate markets as decision-makers go into a holding pattern for spending and job creation due to pending uncertainty.
"Overall companies hold plentiful cash reserves, but they are hesitant to hire without clarity over how these outstanding issues will impact the bottom line," said Lawrence Yun, chief economist of the National Association of Realtors. "Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector. Industrial and warehouse space is holding on better because imports and exports have advanced."
NAR's quarterly report shows the slowdown in job creation and ongoing tight loan availability has tempered growth in some markets. "The difficulty small businesses have in getting commercial real estate loans for leasing or purchase is keeping a lid on demand," Yun explained. "Multifamily is the only commercial sector with a notable growth in new space, with some lending provided through government loans."
With the exception of multifamily, vacancy rates remain above historic averages seen since 1999. The office market has shouldered 14.4 percent vacancy during the time span while industrial was tracked at 10.1 percent and retail at 8.1 percent. Multifamily, long the darling of the commercial markets, is just 5.8 percent.
Across all property types, vacancies are marginally declining and rents are modestly rising. However, Yun foresees there will be no significant changes in the outlook before the end of this year.
NAR's latest Commercial Real Estate Outlook analyzes quarterly data in the office, industrial, retail and multifamily markets. REIS Inc. provided historic data for metro areas.
A bird's eye look at the report shows:
- Office vacancy projected to drop to 15.6 percent by Q3 2013 from the present 16.1 percent. The markets with the lowest office vacancy rates presently are Washington, D.C., 9.4 percent; New York, 10.0 percent; and New Orleans, 12.8 percent. Rents are projected to climb 2 percent this year and 2.6 percent in 2013. This year should end with 24.1 million square feet of net absorption and 2013 is predicted to achieve 47.8 million square feet of absorpotion.
- Industrial vacancy will taper to 10.5 percent by Q3 2013, a drop of just 0.2 percent. The areas with the lowest rates currently are Orange County, Calif., 4.6 percent; Los Angeles, 4.8 percent; and Miami, 6.8 percent. If NAR is on target, industrial rent will climb 1.7 percent this year and 2.4 percent in 2013. Net absorption will be 59.8 million square feet by year's end and will climb to 67.2 million square feet in 2013.
- Retail vacancy will fall to 10.7 percent by Q3 2013, also a mere 0.2 percent decline. The lowest retail vacancy rates include San Francisco, 3.8 percent; Fairfield County, Conn., 3.9 percent; and Long Island, N.Y., and Orange County, Calif., both 5.3 percent. Rent will rise 0.8 percent this year and 1.3 percent in 2013 while net absorption should be 10.3 million square feet this year and 20.1 million square feet next year.
- The vacancy rate for the multifamily market could dip to 4.2 percent by Q3 2013 from its present 4.3 percent. Areas with the lowest rates currently are Portland, Ore., 2.0 percent; New York and Minneapolis, both 2.2 percent; and New Haven, Conn., and San Jose, Calif., both 2.4 percent. The average apartment rent is predicted to increase 4.1 percent in 2012 and 4.4 percent next year. Net absorption should be 219,300 units this year and 236,600 in 2013.
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