NAR Forecasts Strong Demand, Falling Vacancy in CRE Sectors

Major commercial real estate (CRE) sectors continue to improve, albeit at a slow pace, the ""National Association of Realtors"":http://www.realtor.org/ (NAR) said in its latest quarterly CRE forecast.

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The outlook, published by NAR's Research Division, projects national vacancy rates to decline across all commercial sectors in the next year, with the largest drop hitting the office sector as ""gradual economic improvement and job creation [drive] absorption of space.""

In the office market, vacancy rates are forecast to fall from a projected 16.0 percent in the first quarter of this year to 15.6 percent in the first quarter of 2014. At the same time, office rents are expected to increase 2.6 percent in 2013 and 2.8 percent next year, building on the 2.0 percent growth seen in 2012. 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 expected to total 34.0 million square feet this year and 42.3 million square feet in 2014.

Industrial vacancy rates are ""likely to decline from 9.6 percent in the first quarter of this year to 9.2 percent in the first quarter of 2014,"" NAR said, with net absorption of industrial space totaling 121.8 million square feet this year and 103.5 million next year. Annual industrial rents are projected to rise 2.3 percent this year and 2.6 percent next year after rising 1.7 percent in 2012.

Meanwhile, in the retail sector, vacancy rates are forecast to slide from 10.7 percent in Q1 2013 to 10.4 percent in Q1 2014. Net absorption of retail space is seen at 11.9 million square feet in 2013 and 16.4 million in 2014.

Average retail rents will likely rise 1.5 percent this year and 2.1 percent next year. Retail rents rose about 0.8 percent last year.

The multifamily market is forecast to see the smallest decline in vacancy rates as space remains tight, NAR said. Vacancy rates in the apartment rental sector are forecast to ease from 4.0 percent in 2013's first quarter to 3.9 percent at the same time next year. NAR explained that vacancy rates below 5 percent ""generally are considered a landlord's market with demand justifying higher rents.""

""Rent increases have been higher in multifamily housing where supply is not matching strong demand, thereby allowing landlords to raise rents at faster rates,"" said Lawrence Yun, chief economist for NAR.

Average apartment rents are expected to increase 4.6 percent this year and 4.7 percent in 2014 after rising 4.1 percent last year.