Slow, Steady Recovery Predicted for Commerical Real Estate
Gradual improvement expected across all categories in 2014 and 2015.
The commercial real estate market is continuing to improve, but even with the country's brighter employment and economic outlook, the commercial recovery is slow-going, according to the National Association of REALTORS' quarterly commercial real estate forecast. The report includes projections for the four major commercial sectors: office, industrial, retail, and multifamily markets.
“Office demand is expected to see only slow and gradual improvement," says Lawrence Yun, NAR's chief economist. "Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters and not home owners."
NAR forecasts the following with vacancies and rents:
Multifamily Markets
NAR predicts that average apartment vacancy rates will rise from 4 percent in the first quarter of 2014 to 4.1 percent in the first quarter of 2015. The markets with the lowest multifamily vacancy rates are:
- New Haven, Conn.: 2.1 percent
- Minneapolis and New York City: 2.3 percent each
- San Diego and Oakland-East Bay, Calif.: 2.5 percent each.
Projections of average apartment rents: Increase 4.3 percent in 2014 and 3.5 percent in 2015.
Office Markets
NAR predicts that office vacancy rates will decline from an expected 15.8 percent in the first quarter of 2014 to 15.6 percent in the first quarter of 2015. The markets with the lowest office vacancy rates are:
- New York City: 9.5 percent
- Washington, D.C.: 10.2 percent
- Little Rock, Ark.: 11.6 percent
- Birmingham, Ala.: 12.7 percent
- San Francisco and Nashville, Tenn.: 12.8 percent each
Projections of average office rents: Increase 2.3 percent in 2014 and 3.2 percent in 2015
Industrial Markets
NAR predicts that industrial vacancy rates will fall from 9 percent in the first quarter of 2014 to 8.9 percent in the first quarter of 2015. The markets with the lowest industrial vacancy rates are:
- Orange County, Calif.: 3.7 percent Los Angeles: 3.8 percent
- Miami: 5.8 percentSeattle: 5.9 percent
- Riverside-San Bernardino, Calif.: 6.1 percent.
Projections of average industrial rents: Increase 2.4 percent in 2014 and 2.6 percent in 2015
Retail Markets
NAR predicts that retail vacancy rates will decline from 10.2 percent in the first quarter of 2014 to 9.9 percent in the first quarter of 2015. The markets with the lowest retail vacancy rates are:
- San Francisco: 3.1 percent
- Fairfield County, Conn.: 3.8 percent
- Long Island, N.Y.: 4.8 percent
- San Jose, Calif.: 5.2 percent
- Northern New Jersey and Orange County, Calif.: 5.3 percent each
Projections for average retail rents: Increase 2 percent in 2014 and 2.3 percent in 2015
Source: National Association of REALTORS
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