Browse Tag: Economic growth

NAR 2012 Commercial Outlook: Vacancies Down, Rentals Rise Expected

NAR Commercial February 2012 forecast excerptReleased today was the February 2012 edition of Commercial Real Estate Outlook from NAR Commercial. Among the tables and graphs, report author George Ratiu, Manager of NAR Commercial Research sees a 2 to 3 percent general economic recovery rate and reports two CRE findings:

Vacancies were down 1Q 2012 

Beyond the decline in vacancies, job growth is a key driver of the demand for commercial space. Economists are forecasting a an increase in payroll jobs in the neighborhood of 2 to 2.5 million for the next two years based on GDP growth in the 2 to 3 percent range. A continued recovery for the commercial sector is projected in NAR’s February edition of the Commercial Real Estate Outlook.

Rental rates are expected to rise

As the economic recovery continues in the 2 to 3 percent range rental rates are projected to increase in both the residential and commercial sectors.  Commercial space completions have been below absorption, and demand for commercial space has started to increase.  Based on the currently available economic forecast, a modest rent growth for the commercial sector is projected.

See a copy of the complete report here.

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Growth In Commercial Real Estate Markets Expected in 2012


While leasing, construction and vacancy rates appear more or less flat, leading economic indicators are looking up and expected to bring the commercial markets along in 2012. That’s the upshot of NAR’s latest Commercial Real Estate Outlook along with SIOR’s Commercial Real Estate Index.

NAR Chief Economist Lawrence Yun:  “Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn’t ramp up, rent growth could potentially approach 7 percent over the next two years.”

Looking at commercial vacancy rates from the fourth quarter of this year to the fourth quarter of 2012, NAR forecasts vacancies to decline 0.6 percentage point in the office sector, 0.4 point in industrial real estate, 0.8 point in the retail sector and 0.7 percentage point in the multifamily rental market.

The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of 231 local market experts,1 shows the broad industrial and office markets were relatively flat in the third quarter, in step with macroeconomic trends. The national economy continues to affect the sectors, with 92 percent of respondents reporting the economy is having a negative impact on their local market.

Even so, the SIOR index, measuring the impact of 10 variables, rose 0.6 percentage point to 55.5 in the third quarter, following a decline of 2.6 percentage points in the second quarter. In a split from the recent past, the industrial sector advanced while the office sector declined.

The next commercial real estate forecast and quarterly market report will be released on February 24.

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Economic Risks Look Set to Stall the U.S. Office Market Recovery

Thank you to Ross Moore, Chief Economist at Colliers International for contributing this blog post today.

The U.S. office market looks set to finish the year on a more cautious note than earlier in 2011 and halt what had been a modest recovery characterized by a measured degree of optimism and a series of occupancy gains. A clear deceleration in economic activity and a near absence of job creation, however, has cast a shadow over the office space market. With the economy possibly coming close to stall speed, the outlook for the office space market has once again been called into question.

The lack of job creation of any significance lingers as a particular concern. Many metro areas are still far from firing on all cylinders, reflected by only lackluster growth in total non-farm employment: August data showed year-over-year growth of just under one percent. More encouraging, however, is office-using employment, which for the year ending August was up 1.5 percent, but two of the last three months were characterized by job losses in this key sector suggesting the annual growth rate is sure to come down in the coming months. Indeed, for the first eight months of 2011, monthly office-using job creation averaged 29,000, compared with 16,500 per month in the same period in 2010.

Despite these modestly favorable office job numbers, the outlook for the office space market is far from assured. Uncertainty is now a key feature of the business landscape. This is causing many business leaders to place expansion on hold or at least to scale back planned growth. Significantly higher energy costs are a distinct possibility, further monetary easing is in question and any additional fiscal stimulus is unlikely due to the policy paralysis that is characterized by the leadership in Washington. Combined with the ongoing European sovereign debt crisis, the brakes are now being applied to what was only a nascent economic recovery. The global economy, which had been a key source of growth, has clearly come off the boil and calls into question the vitality of U.S. exports which was one of just of a few bright spots.

Year-to-date data confirms our view that the U.S. office market landscape will continue to be uneven in nature and unusually volatile. Manhattan, Washington, San Francisco and Boston have led the country on the road back to a more normal market, however, Dallas, Denver, Houston, Philadelphia, Raleigh, San Diego, San Jose, Seattle and West Los Angeles are also showing encouraging signs. Beyond this relatively short list of cities, many markets have seen little pick-up leasing activity and continue to be characterized by a clear excess of space and no pricing power on the part of landlords. Any substantial increase in office rents is unlikely to occur in 2011, or 2012, and perhaps even into 2013.

The U.S. national office vacancy rate did nudge marginally lower during the first six months of the year, shifting 20 basis points to the downside. At midyear, office vacancies registered 15.26 percent and are on track to finish the year at or near 15.00 percent. During the first half, downtown vacancies decreased eight basis points to register 14.05 percent. Suburban vacancy rates pushed lower, falling 24 basis points to 15.91 percent. Over the past 12 months, the U.S. national office vacancy rate has fallen 41 basis points.

The keys to reading the U.S. office market correctly are still job growth, energy prices, monetary and fiscal policy and stable financial markets. Currently none of these variables can be predicted with any degree of certainty. For the near term, and quite possible the medium term, job growth will likely remain sluggish, energy prices elevated, monetary policy loose (although QE3 is unlikely), fiscal spending increasingly restrictive, and financial markets volatile. As a backdrop to office space demand, these signs are not altogether encouraging. For most landlords, attracting new tenants will be a challenge with little or no pricing power. Tenants, on the other hand, will enjoy at least another twelve months where they are clearly in the driver’s seat.   This is not to suggest the recovery will never materialize, but with the domestic and global economy gearing-down, the new macro-economic environment has pushed the timing back to 2012 and quite possibly 2013. Not an overly optimistic outlook, but in all probability, realistic.



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