by Brianna Crandall — July 31, 2015—The U.S. commercial real estate market continued to exhibit strong momentum across all property types in the second quarter of 2015 (Q2 2015), according to the latest analysis from global property advisor CBRE Group
During Q2 2015:
- The office vacancy rate dropped 40 basis points (bps) to 13.5%, now at lowest point since Q3 2008 (13.2%).
- In Q2 2015, the industrial availability rate (space that is actively being marketed and available for tenant build-out within 12 months) dropped 30 bps to 9.8%—matching the cyclical low achieved in Q4 2007.
- The retail availability rate dropped 10 bps, ending the quarter at 11.4%.
- Demand for the nation’s apartment buildings continued to grow, with vacancy dropping to 4.3% in Q2 2015.
“The strong progress in the commercial market matched the continued steady improvement in the economy,” said Jeffrey Havsy, Americas chief economist for CBRE. “We remain bullish for the second half of 2015 as economic growth is expected to accelerate after a sluggish start to the year.”
Office market
Q2 2015 was the 21st consecutive quarter without an increase in office vacancy rates since the end of the Great Recession, according to the report. The office vacancy rate reached its lowest point since Q3 2008. Vacancy dropped to 13.5% with a decline of 40 bps, and improvement remained broad-based across the U.S. office markets.
The South and West regions saw the greatest improvement over the past four quarters, with notably strong performance in San Jose, Nashville, San Francisco, Richmond, Orange County and Austin. The nation’s lowest vacancy rates in Q2 2015 were in San Francisco (6.7%), Austin (8%), Nashville (8.4%), Pittsburgh (9%) and New York (9.1%).
Industrial market
The industrial availability rate dropped 30 bps from Q1, to 9.8%. The U.S. industrial real estate market has now seen flat or declining availability rates for 21 consecutive quarters, the longest stretch since CBRE began tracking the national market in 1989.
Lower industrial availability rates were widespread in Q2 2015. Markets of all sizes and in all regions posted lower availability rates during the quarter, paced by large markets, including Atlanta (-40 bps), Chicago (-40 bps), Los Angeles (-50 bps) and Riverside (-80 bps).
Retail market
During Q2 2015, the retail availability rate dropped 10 bps from Q1 2015, and 40 bps from a year earlier, ending the quarter at 11.4%. The rate is now 190 bps below its post-recession peak of 13.3%, representing a slow but ongoing decline.
The greatest declines were posted by Louisville (-80 bps), Seattle (-40 bps), Salt Lake City (-120 bps) and Jacksonville (-40 bps). San Francisco recorded the lowest availability rate in Q2 2015 at 5.4%.
Apartment market
Preliminary data shows that apartment demand continued to be strong in Q2 2015, with the multifamily housing vacancy rate declining to 4.3%, a 30 bps drop from a year earlier. This drop provides further evidence that the rental market continues to tighten along with the expanding U.S. economy. The market is very tight and apartment demand remains strong as the vacancy rate pushes closer to its 20-year vacancy low of 3.1% (Q3 2006).
Compared to a year earlier, vacancy rates declined in 43 of the 62 markets, while rising in 15 and staying the same in four. The following markets experienced the greatest year-over-year declines (of 80 bps or more): Salt Lake City, Memphis, Richmond, Jacksonville, Las Vegas, Atlanta, Phoenix, Fort Worth, Orlando and Indianapolis.
Among those posting Q1 vacancy rates of 3.5% or lower were Providence, Newark, Hartford, Salt Lake City, Minneapolis, Miami, San Jose, New York and Sacramento.
With occupancy remaining high by historical standards, effective rent growth is expected to stay strong well into 2015, forecasts the report. Although construction places downward pressure on rents, the market is tight enough to absorb this activity, it concludes.
