All of the major commercial real estate sectors in the US are seeing improved fundamentals, but multifamily housing is becoming a landlord’s market commanding bigger rent increases, the latest Commercial Real Estate Market Survey from the National Association of Realtors shows.
Lawrence Yun, NAR chief economist, said vacancy rates are improving in all of the major commercial real estate sectors. ‘Sustained job creation is benefiting commercial real estate sectors by increasing demand for space,’ he pointed out.
‘Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest,’ he added.
NAR forecasts commercial vacancy rates over the next year to decline 0.4% in the office sector, 0.8% in industrial real estate, 0.9% in the retail sector and 0.2% in the multifamily rental market.
‘Household formation appears to be rising from pent up demand. The tight apartment market should encourage more apartment construction. Otherwise, rent increases could further accelerate in the near to intermediate term,’ explained Yun.
Most market indicators posted advances in the fourth quarter, but 71% of respondents said leasing activity is below historic levels in their market, an improvement from 83% in the third quarter. Only 29% report there is ample sublease space available.
Construction activity is still low, with 95% of experts reporting it is below normal, and 83% said it is a buyers’ market for development acquisitions. Prices are below construction costs in 78% of markets.
Participants are broadly expecting stronger conditions for the current quarter, with two out of three expecting market improvement.
The apartment rental market, known as multifamily housing, is likely to see vacancy rates drop from 4.7% in the first quarter to 4.5% in the first quarter of 2013. Multifamily vacancy rates below 5% are generally are considered a landlord’s market with demand justifying higher rents.
Areas with the lowest multifamily vacancy rates currently are New York City at 1.8%, Minneapolis and Portland, Oregon, both at 2.5%, and San Jose, California at 2.7%.
After rising 2.2% last year, average apartment rent is expected to increase 3.8% in 2012 and another 4% next year. Multifamily net absorption is forecast at 209,900 units this year and 223,600 in 2013.
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