Interesting Times

By CHRISTINE RICCIARDI, HousingWire, 11-29-10

Commercial real estate markets are stabilizing nationwide and will modestly improve in 2011, according to the latest National Association of Realtors economic outlook released Monday.

The outlook cited a recent commercial real estate index by The Society of Industrial and Office Realtors, which reported a 1.6% increase in the third quarter, to 42.6 on the index. This is the fourth consecutive quarter of improvement in the index, however, it still remains well below normal.

The index is measured on a scale to 100. An index of 100 represents equilibrium in the commercial marketplace.

NAR's chief economist, Lawrence Yun, said that signs of stabilization in the market are due primarily to an increase in demand for commercial space, which "means overall vacancy rates have already peaked or will soon top out."

The current vacancy rate for office space nationally stands at 16.7%, but NAR predicts that rate to drop to 16.4% by the fourth quarter of 2011. New York City and Honolulu are the cities with the lowest vacancy rates, both near 9%, according to NAR. All other office markets monitored by NAR — which monitors a range of 50 to 60 markets for each commercial category — reported an office vacancy rate more than 10%.

NAR expects vacancy rates in the industrial and multifamily sectors to decline as well. Industrial vacancies are projected to fall to 13.2% by the fourth quarter of 2011, down from the current 13.9%.

Multifamily properties are also predicted to improve, according to NAR's outlook. Vacancy rates will drop to 5.8% by the end of 2011, down from the current 6.4%.

As of the report's release, San Jose, Calif, Miami, Boston and Portland, Ore., had the lowest multifamily vacancies rates, around 4%.

Lower vacancy rates suggest an increase in property rent, according to Yun; however, only rent in the multifamily sector is expected to rise, up 0.2% in the fourth quarter of 2010 and up 1.6% in 2011.

Rent in the retail sector is expected to drop 3.4% from the fourth quarter of 2010 to the same period 2011, while rent for industrial property is predicted to fall 7.4%. NAR said rent for office space will drop 3.4% by the end of 2011.