Commercial Real Estate Market Offering Incentives

Washington, DC, Aug. 26, 2010 -- Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, said fallout from the recession continues to impact commercial real estate.

“Vacancy rates are beginning to level off in some sectors, but rent discounts and moderate levels of landlord concessions are widespread,” he said.

“This is very much a tenant’s market, which is quite favorable for businesses that are considering expansion.  It’s also encouraging that there is a modest improvement in the sentiment of commercial real estate practitioners.”

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 600 local market experts, shows vacancy rates are beginning to level, but rents remain depressed, and subleasing space is high.

The SIOR index, measuring 10 variables, rose 2.8% points to 41.0 in the second quarter, but remains well below a level of 100 that represents a balanced marketplace.  This is the third consecutive quarterly improvement after nearly three years of decline; the last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007.

Fifty-seven percent of respondents expect improvements in the office and industrial sectors in the third quarter.

Commercial real estate development remains stagnant in all regions with low investment activity; 88% of respondents said it is virtually nonexistent in their markets, but development acquisitions are beginning to grow in many areas in what is described as a buyer’s market.

Looking at the overall market, vacancy rates will shift modestly in the coming year according to NAR’s latest Commercial Real Estate Outlook.
 
Retail vacancy rates should hold steady at 13.1% in both the second quarter of this year and in the second quarter of 2011, with a level pattern for most of next year.

The apartment rental market – multifamily housing – is benefiting from modestly higher demand.  Multifamily vacancy rates are likely to decline from 6.0% in the second quarter of this year to 5.6% in the second quarter of 2011.