The latest NAR quarterly commercial real estate forecast says that commercial activity should progress at a gradual pace heading into 2015.
‘Solid economic growth in the third quarter proved that the second quarter wasn’t an anomaly, as business spending increased, commercial construction rose and the labour market continued to make positive strides,’ said Lawrence Yun, NAR chief economist.
‘Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects,’ he explained but pointed out that softening in the global economy will likely widen the trade deficit in the US and could trigger some weakening in the overall economy.
‘GDP growth in the fourth quarter will be sluggish at around 2% behind stalling exports. Although GDP will likely climb to near 3% in 2015, the current pace of job growth could slow and ultimately impact commercial real estate activity if sluggishness in the global economy persists,’ he added.
National office vacancy rates are forecast to decrease 0.5% over the coming year due to job growth exceeding inventory coming onto the market. Improved manufacturing activity should lead to a declining vacancy rate for industrial space at 0.4%, while retail space is forecast to decline 0.2% behind a boost in consumer spending from personal income gains and lower gas prices.
‘Low housing inventory and the sizeable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,’ explained Yun.
The report includes overall projections for four major commercial sectors and analyses quarterly data in the office, industrial, retail and multifamily markets. Office vacancy rates are forecast to slightly decline from 15.7% in the fourth quarter to 15.6% through to the fourth quarter of 2015.
The markets with the lowest office vacancy rates in the fourth quarter are Washington, D.C., at 9.3%, New York City at 9.6%, Little Rock at 11.6%, San Francisco at 12.2% and Seattle at 12.8%.
Office rents are projected to increase 2.4% in 2014 and 3.3% next year. Net absorption of office space in the US, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 35.6 million square feet this year and 48.8 million in 2015.
Industrial vacancy rates are expected to fall slightly from 8.8% in the fourth quarter to 8.4% in the fourth quarter of 2015.
The areas with the lowest industrial vacancy rates currently are Orange County, California, with a vacancy rate of 3.6%, Los Angeles at 3.7%, Seattle at 5.8%, Miami at 6%, and Palm Beach, Florida, at 6.5%.
Annual industrial rents should rise 2.4% this year and 2.9% in 2015. Net absorption of industrial space nationally is expected to total 110.7 million square feet in 2014 and 102.5 million square feet next year.
Vacancy rates in the retail market are expected to decline from 9.7% currently to 9.5% in the fourth quarter of 2015. Currently, the markets with the lowest retail vacancy rates include San Francisco at 3.5%, Fairfield County, Connecticut, at 3.9%, San Jose, California, at 4.6%, Orange County, California, at 5.2% and Long Island, New York, at 5.3%.
Average retail rents are forecast to rise 2% in 2014 and 2.5% next year. Net absorption of retail space is likely to total 11.4 million square feet this year and jump to 18.9 million in 2015.
The apartment rental market should see vacancy rates slightly increase from 4% currently to 4.3% in the fourth quarter of 2015. Vacancy rates below 5% are generally considered a landlord’s market, with demand justifying higher rent.
Areas with the lowest rental vacancy rates currently are Orange County, California, and Sacramento, California both at 2.2%, Providence, Rhode Island, and New Haven, Connecticut, both at 2.3% and Hartford, Connecticut, at 2.5%.
Average apartment rents are projected to rise 4% this year and 3.9% in 2015. Multifamily net absorption is expected to total 216,300 units in 2014 and 171,200 next year.
