05/08/2014 | by Sarah Borchersen-Keto
Fundamentally Speaking: Encouraging Signs in Apartment, Office Sectors

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s vice president of research and industry information, discussed some encouraging trends in the office and apartment sectors during the first quarter of 2014.

Schnure noted that the apartment sector witnessed another decline in vacancy rates in the first quarter, reaching a new low for the cycle. The office sector also saw some improvement in vacancy rates, although rates are still several percentage points above what would be considered “normal” in a healthy market, he said.

However, Schnure emphasized that vacancy rates moved down despite the addition of new supply, particularly in the apartment sector. Analysts had been concerned that new supply would swamp new demand, Schnure said, but that has not occurred so far.

At the same time, Schnure noted, the large amount of pent-up demand in the housing market from individuals who are currently sharing accommodations or living at home shows promise for the future.

Looking at the office sector, Schnure highlighted the balance between supply and demand fundamentals as increased construction activity is being met with an improving job market.

As for the retail sector, Schnure reported a sluggish performance for the first quarter, with flat vacancy rates and some deceleration in rent growth. “You’re not seeing a lot of oomph in the retail sector yet,” Schnure said.

Turning to broader economic developments, Schnure said the monthly pattern of consumer spending supports the idea that the 0.1 percent increase in gross domestic product (GDP) during the first quarter of the year was mostly weather-related. Spending in January and February was weak, while a big acceleration occurred in March, Schnure observed.

“We’ve seen other more recent data that are consistent with this just being a temporary phenomenon,” he added.

Many economists are forecasting GDP growth of around 3 percent for the rest of the year, Schnure said: “If they’re right, 3 percent would be good enough to do quite a bit for the property sector.”

Schnure also observed that the Federal Reserve wants to see the economy growing at a 2.5 to 3 percent range, a goal that Schnure expects will take “quite a bit of time” to achieve.