Economic indicators should continue their upward swing through 2016, which is good news for property owners, according to the Commercial Real Estate Outlook Report recently released by the National Association of Realtors (NAR).
The quarterly analysis, compiled by NAR’s research division, measures a variety of economic factors to predict the near future of the commercial real estate industry. All signs point to strong results over the next 19 months, the report suggests.
“Net absorption rose across the property types, driving rents higher,” according to the report. “As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.”
In the office sector, the report predicts absorption will reach 51.8 million square feet in 2015 and over 60 million in 2016, lowering vacancy rates 20 basis points to 15.4 percent by the end of 2016. Rents in the sector should rise 3.4 percent in 2015 and an additional 3.7 percent in 2016.
In the industrial sector, meanwhile, new supply is struggling to keep pace with the large amount of space getting absorbed.
“Industrial markets — especially ports and intermodal distribution centers — have been positioning for the [expansion] of the Panama Canal,” says the report. “Demand for industrial space is expected to total 108.8 million square feet in 2015.”
Supply in the industrial sector, though, will only reach 87.4 million square feet, driving the vacancy rate down 20 basis points to 8.2 percent by the end of the year. Industrial rents are expected to increase 3.1 percent in each of the next two years, according to the report.
In the retail sector, high consumer confidence is leading to a sharp drop in the vacancy rate — 50 basis points to 9.1 percent by the end of 2016, the report predicts. This improvement is expected to lead to a 2.6 percent uptick in retail rents this year and 3.1 percent in 2016.
The only sector expected to see an increase in vacancy through 2016 is multifamily, where construction growth is set to outpace demand.
“Apartment net absorption is estimated to reach a little over 172,500 units in 2015, while new apartment completions will add 230,200 units to the market,” the report states. “Rent growth is projected to slow from above 4 percent over the past few years to 3.6 percent in 2015.”
Click here to read the full report.
The National Association of Realtors is a trade organization for real estate agents in the United States. It is the largest trade association in the country.
— Jeff Shaw