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Data Indicate CRE Fundamentals Improving Across the Board

02/29/2012 | By Carisa Chappell

Data Indicate CRE Fundamentals Improving Across the Board

Commercial real estate vacancy rates and rents are improving in all sectors, according to George Ratiu, manager of quantitative and commercial research at the National Association of Realtors (NAR).

"Net absorption is projected to be positive. 2012 was the first year after the 2008 financial crisis where demand was positive across all property types," he said.

Ratiu said the professional and business services jobs added in the fourth quarter of 2011 have helped boost the demand for commercial real estate. He said although it will be at a moderate pace, he expects the vacancy rates to continue to decline.

NAR is forecasting commercial vacancy rates over to decline 0.4 percentage points in the office sector, 0.8 percentage points in the industrial sector, 0.9 percentage points in the retail sector and 0.2 percentage points in the multifamily sector in the next year. Currently, vacancy rates are especially low in the apartment market at 4.7 percent in the first quarter.

The report noted that areas with lowest multifamily vacancy rates include New York, Minneapolis, Portland and San Jose, Calif.

The combination of low vacancy rates and growing demand portends increased rental rates. Ratiu said rents are showing signs of strengthening, especially with the market supply having been at a standstill over the last few years.

"A soft recovery is expected to bump up rent," Ratiu said. In terms of specific sectors the report noted that office rents should increase another 1.9 percent in 2012, industrial rent is expected to rise 1.8 percent, retail 0.7 percent and multifamily rent will increase the most, by 3.8 percent.

Although demand is picking up, Ratiu said construction activity remains low.

"It's virtually at zero," he said. "I think that new construction will eventually accelerate, but right now it's still muted."