Multi-Family Properties Lead Commercial Market in Declining Vacancies, Rising Rates

by devteam November 27th, 2012 | Share

Vacancy rates inrncommercial and multi-family properties are expected to decline gradually overrnthe next year with an already tight multi-family rental market tightening stillrnfurther and producing strong rent increases. rnThe quarterly commercial real estate forecast from the NationalrnAssociation of Realtors® (NAR) puts the current multi-family vacancy rate at 4rnpercent, less than half that of any of the other commercial categories NARrntracks.</p

Multi-family vacancies will remainrnrelatively stable over the next five quarters, averaging 4.0 percent throughrn2013 even as the market absorbs large numbers of units coming on line.  There will be 88,500 new units completed thisrnyear, a number that is expected to jump to 143,200 in 2013 and 187,000 inrn2014.  The current annual absorption raternof 219,725 will rise to 234,576 in 2013 and 281,518 in 2014 and the inventoryrnwill increase from 9.9 million units this year to 10.2 million by the end ofrn2014.  Areas with the lowest multifamily vacancy ratesrncurrently are Portland, Oregon, at 2.1 percent; New York City, 2.2 percent; andrnMinneapolis, 2.3 percent while the highest rates are in Memphis andrnJacksonville, Florida at 8.7 percent and 8.0 percent respectively.</p

Multifamilyrnrents are projected to increase 4.1 percent in 2012, 1.2 percent of which willrncome in the current (4th) quarter. rnNAR projects another 4.6 percent increase in 2013 and 4.7 percent inrn2014.  </p

The otherrncommercial real estate sectors are also showing gradual improvement and arerneasily absorbing the relatively small amounts of new space coming on line.  The largest vacancy rate is among officernproperties at 16.7 percent.  The rate isrnexpected to decline to 15.7 percent over the next two years with rentsrnincreasing 2.0 percent this year, 2.5 percent in 2013, and 2.8 percent in 2014.</p

Retail vacanciesrnare at 10.8 percent and are expected to drop by 0.1 percent next year and reachrn10.1 percent by the end of 2014.  Rentsrnare expected to increase 0.8 percent this year, 1.4 percent next year and thenrn2.0 percent.  The vacancy rate in thernindustrial sector is 10.1 percent projected at 9.7 percent in 2013 and 9.4rnpercent in 2014.  Rent will increase 1.7rnpercent this year, and 2.2 percent and 2.6 percent in the following twornperiods.</p

Lawrence Yun, NAR chief economist, said the market has beenrnslowly building momentum.  “Job creation is the key to increasing demandrnin the commercial real estate sectors,” he said.  “The economy is expectedrnto grow 2.5 percent next year, and with modest job creation, assuming there isrnno fiscal cliff, the demand for commercial space will gradually rise.  Therngreatest friction that remains is a tight credit environment, notably forrnsmaller properties.”</p

“The primary factor holding back greater job creation hasrnbeen uncertainty over regulations and associated costs,” Yun said.  “Withrnthe elections behind us and Washington apparently resolved to prevent a fiscalrncliff, it’s hoped that ambiguity over regulatory issues will clear relativelyrnsoon so employers can understand the rules of the game and the layout of thernfield.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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