Commercial Real Estate Market on Uptrack with Lowe
Washington, DC, June 15--The commercial real estate market is improving as vacancy rates decline and rents firm up in all four commercial market sectors, according to the National Association of Realtors Commercial Real Estate Spotlight.
David Lereah, NAR’s chief economist, said solid gains are forecast for commercial real estate through 2006. "Even with a lot of new construction around the country, we are seeing healthy levels of commercial real estate space being purchased, rented and occupied," he said. "As a result, vacancies are declining across the board – this is improving the fundamentals for commercial real estate sectors into the foreseeable future."
The NAR forecast for four major commercial sectors is based on analysis of data in 57 metro areas tracked, including the office, retail, industrial and multifamily markets. The forecast was produced with data provided by Torto Wheaton Research and Real Capital Analytics.
In the office sector, growing employment has resulted in more demand for space. Office vacancy rates should decline to 14.1 percent by the fourth quarter of this year and 12.2 percent by the end of 2006, down from 15.4 percent last year. Office rents are forecast to grow 4.4 percent in 2005 and 4.9 percent next year, after rising only 0.4 percent in 2004.
Areas with the lowest office vacancies currently include Ventura County, Calif.; Orange County, Calif.; Las Vegas; New York City; and Long Island, N.Y., all with vacancy rates of 9.2 percent or less.
Net absorption of office space in the 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is projected at 77.8 million square feet in 2005 and 72.1 million next year, compared with 77.7 million in 2004 and only 20.0 million square feet absorbed in 2003.
Over the last year, there has been almost $100 billion in office transactions. The top metro markets for investment are New York City, Los Angeles, Washington, San Francisco and Chicago.
The industrial sector also is benefiting from employment growth, as well as strong activity in port markets. Vacancy rates are expected to decline 9.9 percent by the end of 2005 and 8.8 percent by the fourth quarter of next year, down from 10.9 percent in 2004. Industrial rents, which slipped 0.6 percent last year, should rise 1.7 percent this year and 2.5 percent in 2006.
The areas with the lowest industrial vacancies are West Palm Beach, Fla.; Los Angeles; Orange County, Calif.; Long Island, N.Y.; and Riverside, Calif., all with vacancy rates of 6.9 percent or less.
Net absorption of industrial space in the 57 markets tracked is forecast at 198.1 million square feet this year, and 219.1 million in 2006, up from 176.5 million last year and only 16.5 million square feet absorbed in 2003. Five key markets in Southern California, which are either seaports or distribution hubs, are expected to account for one-fifth of all industrial space that will be absorbed during the current quarter.
Nearly $27 billion in industrial transactions were recorded in the last year. The top markets for investment are Los Angeles, Chicago, New York City, San Francisco and San Diego.
In the retail sector, strong consumer spending has provided a stable background. The vacancy rate is projected to drop to 6.8 percent in the fourth quarter of this year and 6.9 percent by the end of 2006, compared with 7.5 percent last year. Rent growth, forecast at 3.2 percent in both 2005 and 2006, was 3.3 percent in 2004.
Retail markets with the lowest vacancies include Nashville, Tenn.; Las Vegas; Oakland, Calif.; Washington; and Honolulu, with vacancy rates of 3.2 percent or less.
Net absorption of retail space in the 57 markets tracked is estimated at 34.0 million square feet in 2005 and 27.3 million next year, up from 27.1 million in 2004.
The top markets for retail investment are Los Angeles, Washington, New York City, Chicago and South Florida.
