NAR Sees Gradually Improving Commercial Sector

Washington, DC, Nov. 24, 2014 -- Commercial real estate should be on a firmer footing next year thanks to an improving U.S. economy, according to the National Association of Realtors quarterly commercial real estate forecast.

NAR economist Lawrence Yun says commercial activity should progress at a gradual pace heading into 2015.

“Solid economic growth in the third quarter proved that the second quarter wasn’t an anomaly, as business spending increased, commercial construction rose and the labor market continued to make positive strides,” he said.

“Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects.”

However, Yun does caution that softening in the global economy will likely widen the trade deficit in the U.S. and could trigger some weakening in the overall economy.

“GDP growth in the fourth quarter will be sluggish at around 2% behind stalling exports. Although GDP will likely climb to near 3% in 2015, the current pace of job growth could slow and ultimately impact commercial real estate activity if sluggishness in the global economy persists,” he said.

National office vacancy rates are forecast to decrease 0.5% over the coming year due to job growth exceeding inventory coming onto the market. Improved manufacturing activity should lead to a declining vacancy rate for industrial space (0.4%), while retail space is forecast to decline 0.2% behind a boost in consumer spending from personal income gains and lower gas prices.

“Low housing inventory and the sizeable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,” says Yun.