With the economy gradually improving and job growth rising, vacancy rates are trending downward in each of the major commercial real estate sectors, according to the National Association of Realtors’ (NAR) quarterly commercial real estate forecast released Feb. 25.
Although the improvement is happening slowly, Lawrence Yun, NAR’s chief economist, said net absorption and rent growth is projected to be positive in the office, industrial, retail and multifamily markets.
“Overall commercial real estate leasing activity continued to grow in most markets during the closing months of 2012, which is modestly lowering vacancy rates in all of the commercial sectors early this year,” he said.
NAR is forecasting commercial vacancy rates nationwide to decline by a tenth of a percentage point over the coming year in the multifamily sector, which is currently currently experiencing the tightest availability of the major sectors. Multifamily should see vacancy rates ease from 4.0 percent in the first quarter of 2013 to 3.9 percent in the first quarter of 2014. Vacancy rates below 5 percent are generally considered a landlord’s market, according to Yun.
Decreasing vacancy rates have had an especially pronounced effect on the multifamily sector’s rental rates. “Rent increases have been higher in multifamily housing where supply is not matching strong demand, thereby allowing landlords to raise rents at faster rates,” Yun said.
Growth in rental rates isn’t expected to slow soon, according to the forecast. After rising 4.1 percent in 2012, average apartment rents are expected to increase 4.6 percent in 2013 and 4.7 percent in 2014.
NAR is estimating that the vacancy rate in the industrial sector will decline from 9.6 percent in the first quarter to 9.2 percent in the first quarter of 2014. Annual industrial rents are projected to rise 2.3 percent this year.
The retail vacancy rate is projected to move from 10.7 percent in the first quarter to 10.4 percent in the first quarter of 2014. Meanwhile, rents in the sector are projected to rise 1.5 percent in 2013 and 2.1 percent in 2014.
The office sector has the highest vacancy rate of the four major sectors, but that is projected to fall from 16.0 percent to 15.6 percent at the end of the year. Rent growth will also follow in the office market, with increases of 2.6 percent in 2013 and 2.8 percent in 2014.