Approximately 350,000 office jobs will be created in 2006. Net absorption of office space in 56 markets tracked, including the lease of new space coming on the market as well as space in existing properties, is projected at 22 million square feet in the first quarter of this year. For all of 2006, NAR expects 90 million to 95 million square feet will be absorbed.
Vacancy rates in the first quarter should average 12.6 percent; two years ago office vacancies were close to 17.0 percent. Overall office rents are expected to rise 5.0 percent this year.
Trade and distribution are driving the industrial market, with greater demand in the West and Southeast, and institutions have increased investment in industrial property-- up 65 percent in 2005 to $34.5 billion. There is strong build-to-suit activity, and urban industrial properties are being redeveloped for mixed-use and residential purposes.
With a low inventory-to-sales ratio, businesses need to restock and add space. There is a similar pattern with wholesale inventories, and orders for durable goods have risen strongly--up about 18 percent from a year ago.
Net absorption of industrial space in 54 markets tracked is forecast at about 51.0 million square feet in the first quarter. For all of this year, net absorption is likely to be 265 million to 270 million square feet.
Industrial vacancy rates are projected to drop to 9.1 percent in the first quarter of 2006; two years ago the rate was 11.7 percent. Industrial rents should grow an average of 3.8 percent.
The retail sector has an abundance of space in areas such as Indianapolis, Cincinnati and St. Louis, but drastic shortages existing in other markets like San Francisco and Las Vegas. Los Angeles topped the list of attractive retail markets for investors last year.
Consumer confidence appears to be a bit “iffy,” but retail sales have risen about 7.5 percent. On the downside, savings rates have turned slightly negative this year.
Net absorption of retail space is seen at 30 to 32 million square feet this year. Retail rents in 54 tracked markets are forecast to increase to an average of 4.0 percent in 2006.
The apartment rental market--multifamily housing--has benefited from rising mortgage interest rates, which are boosting renter demand. Job growth and in-migration are driving demand, primarily in the West and Southeast. Conversion of apartments into condos is waning.
Multifamily net absorption is expected to be about 80,000 units in 59 tracked metro areas during the first quarter, while vacancy rates are likely to ease to 5.0 percent. For all of 2006, NAR projects a net absorption of 285,000 to 290,000 units. Rent growth is seen at 5.3 percent this year.
Hotel occupancies are projected at 68.7 percent by the end the year, the highest since September 11, 2001. Markets such as Honolulu and New York City have occupancies greater than 80 percent. Revenue per available room (RevPAR) should be $76 this year – an increase of 6.3 percent from 2005. The greatest increase in RevPAR is expected in Atlanta and Houston.
