The commercial real estate markets are continuing to grow with record investment, and individual sectors in many areas seeing tighter vacancy rates and higher rents, according to the latest Commercial Real Estate Outlook published by the National Association of Realtors.
David Lereah, NARís chief economist, said performance varies among the commercial sectors.
“The office and industrial markets continue to shine, supported by job growth and trade, while the rental apartment sector is seeing healthy rent increases,” he said.Ý “The retail sector is essentially flat, but the hotel industry is doing better than at any time since 2001.”
James Marrelli, NAR vice president of commercial real estate, said there is a record flow of capital into commercial real estate.
“Weíre setting another record this year for investment in commercial real estate,” he said.Ý “Institutional investors, pension funds and foreign investors have focused on commercial grade properties to diversify portfolio assets, with expectations of solid long-term gains.”
Outside of the hotel sector, over $236 billion in commercial real estate transaction volume was recorded nationally in the first 10 months of 2006, up from $231.9 billion in the same period of 2005, not including properties valued at less than $5 million.
The NAR forecast for five major commercial sectors includes analysis of quarterly data for various tracked metro areas.Ý The sectors include the office, industrial, retail, multifamily and hospitality markets.Ý Metro data were provided by Torto Wheaton Research and Real Capital Analytics.
According to the NAR report, a reduction in speculative construction of new office space, along with growth in office jobs, means there are positive fundamentals for most market areas.Ý Office vacancy rates are projected to drop to an average of 12.1 percent in the fourth quarter of 2007 from an estimated 12.9 percent currently–the lowest since 2001. At the end of 2005 they were 13.6 percent.Ý Annual rent growth in the office sector next year is expected to be 5.2 percent, after rising 4.3 percent in 2006.
Areas with the lowest office vacancies currently include New York City; Ventura County, Calif.; Miami; Orange County, Calif.; Honolulu; and Riverside, Calif., all with vacancy rates of 8.9 percent or less. In Pleasanton, the office vacancy rate is estimated at about 9-10 percent.
Vacancy rates in the country’s retail sector on average should hold at 8.1 percent through 2007, the NAR report stated, which would be unchanged from the estimate for the current final quarter of 2006.Ý Average retail rent is projected to grow 1.2 percent next year, after contracting 0.4 percent in 2006.
Much of the lackluster performance is due to persisting vacancies in regional malls, impacted by the merger of Federated Department Stores and the May Company Department Stores.Ý Strip centers anchored by a grocery store seem to be enjoying the best demand from both a retail rental and investment perspective. Although Stoneridge Shopping Center is fully occupied, its plans for a new Nordstrom Department Store with more retail space to fill the current facility have been put on hold by its owner, the financially-troubled Mills Corporation.
Still, Pleasanton is included in the NAR’s assessment of retail markets with the lowest vacancies, which included the Bay Area, Las Vegas, Orange County and Honolulu.
