Led By Multifamily, Improvement Seen in All Commercial Real Estate Sectors
Lawrence Yun, NAR chief economist, said the sluggish growth experienced in the first quarter is not indicative of the actual health of the economy. “Gross Domestic Product should expand closer to 3 percent for the remainder of the year. The improved lending for commercial loans and continuing job gains we’ve seen this spring bode well for modest progress in commercial real estate leases and purchases of properties.”
However, Yun cautions that with rising long-term interest rates on the horizon, consistent economic growth is imperative to solid commercial real estate investment in the years ahead.
Multifamily has led the way. “The multifamily sector continues to be the top-performer in commercial real estate with the lowest vacancy rates. However, tight availability – despite new construction – is causing rents to currently rise near 4 percent annually in many markets,” said Yun. “Many renters who are getting squeezed may begin to view homeownership as a more favorable, long-term option.”
NAR reported earlier this month in its annual Commercial Member Profile that despite subpar economic expansion, Realtors® who practice commercial real estate saw an increase in sales transaction volume and medium gross annual income in 2013.
NAR’s latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS Inc., a source of commercial real estate performance information.
Multifamily Markets
The apartment rental market – multifamily housing – should see vacancy rates edge up from 4.0 percent in the second quarter to 4.1 percent in the second quarter of 2015, with added supply helping to meet growing demand. Vacancy rates below 5 percent are generally considered a landlord’s market, with demand justifying higher rent.
Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.3 percent; Ventura County, Calif., 2.4 percent; and New York City; San Diego; Hartford, Conn.; Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.
Average apartment rents are projected to rise 4.0 this year and in 2015. Multifamily net absorption is expected to total 221,400 units in 2014 and 173,100 next year.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
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