by Brianna Crandall — August 15, 2014—The U.S. commercial real estate market improved strongly across all property types in the second quarter (Q2) of 2014, according to the latest analysis from global commercial real estate services and investment firm CBRE Group, Inc. Key findings include:
- The national office vacancy rate declined by 30 basis points (bps) to reach 14.5% in Q2 2014—an improvement following a 10 bps decline in the vacancy rate in Q1 2014.
- In Q2 2014, national industrial availability decreased by 30 bps from Q1 2014, to 10.8%.
- The retail availability rate declined 11.7%, down 20 bps compared to Q1 2014.
- Demand for the nation’s apartment buildings continued to grow, with vacancy of 4.4% in Q2 2014.
“Commercial real estate leasing activity in Q2 2014 picked up from the weather-affected levels of the prior quarter,” said Jon Southard, Managing Director of CBRE’s Econometric Advisors group. “The pace of demand can finally be described as good—without the caveat of ‘for this recovery.'”
Office Market
In Q2 2014, the suburbs edged out downtown submarkets, with the suburban vacancy rate declining by 40 bps to reach 15.9% while the downtown vacancy rate fell by 30 bps to reach 11.8%. A majority of markets continued to see their vacancy rates fall during the quarter, with rates falling in 45 of the 63 office markets tracked while rising in 15 and remaining unchanged in three, led again by markets with heavy concentrations of tech and energy companies. CBRE’s preliminary estimate is for the U.S. office market vacancy rate to fall to 14.4% by year end.
Industrial Market
With the availability rate falling to 10.8%, the industrial market has now seen its recovery stretch to 16 consecutive quarters, and the current level is 370 bps below the cycle high. A majority of markets continued to improve during Q2 2014, with 40 reporting declines in availability while nine remained unchanged and 12 showed increases. CBRE’s preliminary estimate is that the national industrial availability rate will end 2014 at 10.7%.
Retail Market
Q2 2014’s retail availability rate of 11.7% was down 20 bps compared to Q1 2014, and now stands 150 bps below the post-recession peak of 13.2%. 41 markets recorded declining availability rates in the second quarter compared to Q1 2014; 22 markets recorded flat or increasing rates. CBRE’s preliminary estimate is for the availability rate for neighborhood and community shopping centers to decline to 11.0% in 2014.
Apartment Market
Preliminary data indicates that apartment demand continued to grow in Q2 2014, with the vacancy rate of 4.4%, a 20-bps drop compared to a year ago. The market remains tight by historical standards, with the vacancy rate below the long-term norm. The national apartment demand is now growing at a rate of almost 270,000 units or 1.9% on an annual basis, a pace that is stronger than what the market has seen historically, as well as during the last three years. Vacancy rates declined in 38 of the 63 markets in CBRE’s coverage. Effective rent growth continued to improve last quarter, but is still remaining in the 2.5%-3% per year range in most areas. CBRE’s preliminary estimate is that the U.S. multi-housing market vacancy rate will average 4.7% in 2014.
