Unemployment Still Dogging Commercial Real Estate

While the commercial real estate market in the United States has shown signs of improvement in the last year, high unemployment has continued to tamp down growth, according to a report from Integra Realty Resources (IRR) Inc.

The multifamily and lodging sectors experienced the greatest growth in 2010, IRR said in its 2011 forecast, released Jan. 10. Meanwhile, sectors with stronger ties to the employment rate—office, retail and industrial—remained constrained.

For example, IRR determined that the national office vacancy rate in central business districts had risen from 13.4 percent in 2009 to 14.6 percent in 2010, while the vacancy rate in suburban markets had climbed from 15.5 percent to 17.1 percent during that same period. In the industrial sector, the national vacancy rate was up from 10.2 percent in 2009 to 10.9 percent in 2010. The development pipeline in the sector dropped from 197.1 million square feet to 184.3 million square feet.

However, Jeffrey Rogers, president of IRR, noted that the overall economic outlook for the struggling sectors is improving.

“Economic forecasts predict that the U.S. economy should slowly begin adding jobs towards the end of 2011, which will play a major role in real estate,” Rogers said. “While the level of growth expected is modest, we anticipate slight improvements in certain corresponding sectors, such as vacancy rates for office, industrial and retail properties in the coming year.”

In the lodging and multifamily markets, “bifurcation” in both sectors contributed to their rebounds in 2010, according to IRR. Tenants sought out top-tier properties, which helped prop up both sectors, IRR said.

Until job growth becomes more robust, the multifamily sector should continue its strong performance, IRR said. However, IRR noted that the ongoing debate among lawmakers and regulators regarding the operation of government-sponsored enterprises Fannie Mae and Freddie Mac could have a significant effect on the sector. Potential reforms to Fannie and Freddie could have a limiting effect on both the volume of transactions in the sector and property values, according to IRR.

On the capital markets front, IRR predicted that new issuances of commercial mortgage-backed securities will begin to gain steam and “play a major role in refinancing the coming maturity wave.”

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Unemployment Still Dogging Commercial Real Estate

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