Fundamentals are strengthening across all major U.S. commercial real estate property sectors, according to the National Association of Realtors’ February 2012 Commercial Real Estate Outlook. The multifamily sector is expected to lead the way in 2012 with a 3.8 percent increase in average rent, cementing its shift to a landlord’s market. “Sustained job creation is benefiting commercial real estate sectors by increasing demand for space,” said Lawrence Yun, NAR’s chief economist. “Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest.”
Office sector vacancy rates are forecast to decline from 16.4 percent to 16.0 percent from 1Q12 to 1Q13. Washington, D.C., New York City, and New Orleans currently have the lowest office vacancy rates at 9.5 percent, 10.0 percent, and 12.4 percent, respectively. Office rents are expected to increase 1.9 percent in 2012 and 2.4 percent in 2013.
Industrial vacancy rates should decline 0.8 percentage points year over year, from 11.7 percent to 10.9 percent. Markets with the lowest vacancy rates include Orange County, Calif. (4.8 percent), Los Angeles (4.9 percent), and Miami (7.6 percent). Industrial rents are forecast to rise 1.8 percent this year, and net absorption could reach 40.6 million square feet.
Retail vacancy rates are expected to decline from 11.9 percent to 11.0 percent year over year. San Francisco, Fairfield County, Conn., and Long Island, N.Y., currently have the lowest vacancy rates at 3.6 percent, 5.1 percent, and 5.4 percent, respectively. Average retail rent is forecast to rise 0.7 percent in 2012. The multifamily sector has the lowest vacancy rate at 4.7 percent, and it’s expected to drop to 4.5 percent by 1Q13.
The markets with the lowest vacancy include New York City (1.8 percent), Minneapolis (2.5 percent), Portland, Ore. (2.5 percent), and San Jose, Calif. (2.7 percent). Multifamily net absorption is expected to reach 209,900 units in 2012 and 223,600 units in 2013.