by Shane Henson — September 11, 2013—Vacancy rates generally are tightening in commercial real estate sectors with modest rent growth, according to the National Association of Realtors (NAR) quarterly commercial real estate forecast, the Commercial Real Estate Outlook (CREO). The CREO is NAR’s flagship commercial research publication.
National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.6 point for retail; however, the average multifamily vacancy rate is unlikely to change, with that sector continuing to experience the tightest availability and biggest rent increases, NAR says.
NAR’s latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas was provided by REIS, Inc., a source of commercial real estate performance information, says NAR.
Vacancy rates in the office sector are expected to decline from a projected 15.7% in the third quarter to 15.5% in the third quarter of 2014. The markets with the lowest office vacancy rates presently (in the third quarter) are Washington, D.C., with a vacancy rate of 9.7%; New York City, at 9.8%; Little Rock, Arkansas, 12.1%; and Birmingham, Alabama, 12.4%.
Office rents should increase 2.5% this year and 2.8% in 2014. Net absorption of office space in the United States, which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 30.1 million square feet this year and 41.6 million in 2014.
Industrial vacancy rates are likely to fall from 9.3% in the third quarter of this year to 8.7% in the third quarter of 2014. The areas with the lowest industrial vacancy rates currently are Orange County, California, with a vacancy rate of 3.8%; Los Angeles, 4.0%; Miami, 5.9%; and Seattle at 6.4%.
Annual industrial rents are expected to rise 2.4% this year and 2.6% in 2014. Net absorption of industrial space nationally is anticipated at 102.0 million square feet in 2013 and 105.8 million next year.
Retail vacancy rates are forecast to decline from 10.6% in the third quarter of this year to 10.0% in the third quarter of 2014. Presently, markets with the lowest retail vacancy rates include San Francisco, 3.9%; Fairfield County, Connecticut, at 4.1%; Long Island, New York., 5.0%; and Orange County, California, at 5.5%.
Average retail rents should increase 1.5% in 2013 and 2.3% next year. Net absorption of retail space is projected at 11.8 million square feet in 2013 and 18.2 million next year.
The apartment rental market—multifamily housing—is likely to see vacancy rates edge up only 0.1 percentage point from 3.9% in the third quarter to 4.0% in the third quarter of 2014, with construction rising to meet increased demand. Generally, vacancy rates below 5% are considered a landlord’s market, where demand justifies higher rent.
Areas with the lowest multifamily vacancy rates currently are New Haven, Connecticut, at 1.9%; Syracuse, New York, 2.0%; New York City and San Diego, at 2.1% each; and Minneapolis, 2.2%.