Commercial Property Trends

The most recent commercial property trends NAR report is out giving practitioners an accurate outlook at the four food groups of commercial real estate (office, retail, industrial, multi). Please remember every local market is different and this data is tracked from almost 60 markets across the nation and averaged. You’re local market may fair better or worse depending on your geographic location. Be sure to contact a commercial real estate practitioner in your area of interest.

Office Market

“Vacancy rates in the office sector are expected to rise from 16.1 percent in the third quarter to 18.5 percent in the third quarter of 2010, with job losses continuing to dampen the market. Annual office rent should fall by 12.1 percent this year and decline another 8.5 percent in 2010.”

The commercial property trend above means you should carry twice as much vacancy in your proforma than normal and expect lower rent roll for the next few years. This is not ideal information  for commercial investors and landlords but quality information non the less.  This can be invaluable if you are in the market of planning your next acquisition or constructing new.

Industrial Market
“Industrial vacancy rates are forecasted to rise from 13.5 percent in the third quarter of this year to 15.4 percent in the third quarter of 2010. Annual industrial rent is projected to fall 10.8 percent this year and another 11.5 percent in 2010.”

Same story in the Industrial commercial market as office, higher vacancy lower rents. The silver lining in the industrial real estate market is the rent gap is expected to decline the least out of any of the four commercial property types by only .7 percent

Retail Market
“Retail vacancy rates will probably rise from 12.2 percent in the third quarter to 13.0 percent in the third quarter of 2010. “Near term, retail is the most hopeful commercial sector with an expected rise in consumer confidence, resulting from a restoration of housing wealth as home prices stabilize and begin to rise around the spring of next year,” Yun said. Average retail rent should decline 1.3 percent in 2009 and 3.0 percent next year.”

According to Yun (chief economist at NAR) Retail may be the safest of the 4 commercial property sectors as consumer confidence and residential housing stabilization returns to normal. The great notion in the report is residential prices actually may increase in 2010. Commerical sector looks like it will be 2011 with retail and multi-family leading the recovery and office and industrial lagging.

Multifamily Market
“The apartment rental market – multifamily housing – is impacted by higher home sales to first-time home buyers. “However, as the economy turns around and consumer confidence returns, constraints on household growth will be released, which may help to unleash a pent-up rental demand,” Yun said. Multifamily vacancy rates are projected to be fairly steady, edging up from 7.3 percent in the third quarter of 2009 to 7.4 percent in the third quarter of next year. Average rent is likely to decline 4.1 percent this year, moderating to a 3.3 percent loss in 2010.”

The multi-family sector will show a rental rate decline this year and next with some stablization with possible increases in 2011 (depending on macro-economic decisions). However, The vacancy should stay flat from 2009 to 2010. A good rule of thumb in your commercial multi-family proforma is to carry 10% vacancy (remember the 7.4% is the national average across tracked metro areas).

This entry was posted on Tuesday, December 1st, 2009 at 3:27 pm and is filed under Commercial Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.