NAR Report Predicts Promising Future for Commercial Real Estate

Posted on September 8, 2014

The National Association of Realtors’ second quarterly commercial real estate forecast reveals that a strong rebound in economic growth and ongoing job creation are gradually improving the outlook for all of the major commercial real estate sectors.

“The overall demand for commercial real estate has been on a sustainable growth projector for the last few years as the commercial market has turned a corner,” George Ratiu, NAR’s director of quantitative and commercial research, told Commercial Property Executive. “Last quarter proves indeed it is moving in a growth state beyond just a rebound.”

The report predicts national office vacancy rates will remain unchanged over the coming year, mostly due to added inventory entering the market. In the industrial space, rising exports and a shrinking trade deficit should lead to a declining vacancy rate of nearly 0.04 percent, while the report forecasts a retail decline of 0.2 percent, behind favorable gains in personal income and consumer spending.

“As the report shows, demand for space is measured by net absorption, and it’s positive across all sectors, with a strong trend in the industrial and apartment sectors,” Ratiu said. “One of the main factors is the economic growth. There was a 4 percent jump, which is quite a jump from the first quarter, which was negative, and reverses the trend of the last five years.”

According to Ratiu, the markets with the lowest office vacancy rates are currently Washington, D.C., at 9.3 percent; New York City at 9.6 percent; Little Rock, Ark., at 11.5 percent; San Francisco at 12.4 percent; and New Orleans at 12.7 percent.

“Office rents are projected to increase 2.6 percent in 2014 and 3.2 percent next year,” he said. “Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 36.2 million square feet this year and 50.7 million in 2015.”

In the industrial space, areas that offer the lowest vacancy rates include the likes of Orange County, Calif., with a vacancy rate of 3.5 percent; Los Angeles, with 3.8 percent; Seattle, with 5.9 percent; Miami, with 6.1; and Palm Beach, Fla., at 6.6 percent.

Ratiu forecasts that industrial rents will rise 2.4 percent this year and 2.8 percent in 2015, based on the report, which shows nationally net absorption of industrial space at 107.6 million square feet this year and 104.9 million next year.

Vacancy rates in the retail market are expected to decline from 9.8 percent currently to 9.6 percent in the third quarter of 2015, while retail rents are forecast to rise an average of 2 percent in 2014 and 2.4 percent next year. Net absorption of retail space is likely to total 11.2 million square feet this year and 19.3 million in 2015.

“It’s a positive outlook for the rest of 2014, going into next year, with improving growth very strong next year for office and retail,” he said.

NAR’s next commercial real estate forecast and quarterly market report will be released on Nov. 24.