CBRE: CRE Improves Strongly Across All Property Types in 2Q2014

Commercial real estate is back, and it’s going strong. According to CBRE Group Inc.’s most recent analysis, the market experienced strong improvement during the second quarter with office, industrial, retail and apartment all reporting positive numbers.

Commercial real estate is back, and it’s going strong. According to CBRE Group Inc.’s most recent analysis, the market experienced strong improvement during the second quarter with office, industrial, retail and apartment all reporting positive numbers.

CBRE tracked 63 markets in its analysis and concluded that the second quarter results offer an unequivocal assessment of the state of commercial real estate in the U.S.  As Jon Southard, managing director of CBRE’s Econometric Advisors group, noted in a prepared statement, “Commercial real estate leasing activity in Q2 2014 picked up from the weather-affected levels of the prior quarter. The pace of demand can finally be described as good–without the caveat of ‘for this recovery.’”

The numbers tell the story. During the second quarter, the office market saw a 30 basis-point drop in vacancies to 14.5 percent, compared to a 10 percent decline in the first quarter. Vacancy rates went on the downswing in 45 of the 63 markets, buoyed in many areas by the tech and oil industries. St. Louis saw the biggest falloff with a drop of 210 basis points, and experiencing declines of 100 to 170 basis points were Raleigh, Oklahoma City, San Jose and Orange County. Overall the low development levels and private-sector jobs are propelling the office sector’s success.

In the industrial sector, the availability rate fell to 10.9 percent, marking a 16th consecutive quarter of recovery. Forty of the 63 surveyed markets reported drops in availability and nine held steady. Fort Lauderdale led the group with a 110 basis-point decrease in availability, followed by Las Vegas, Nashville, and Atlanta, which all recorded decreases in availability of 100 basis points. The key to the industrial markets progress: economic expansion.

The retail market went on the upswing, as well, with the availability rate decreasing 20 basis points to 11.7 percent, and 41 markets experiencing a decline. Tampa, Raleigh, Philadelphia and Charlotte were the biggest winners during the second quarter, with declines in availability rates of 60 basis points or more. CBRE expects the positive trend in the retail sector to continue throughout 2014, and forecasts a drop in the availability rate to 11 percent this year.

As for the apartment market, well, there seems to be no stopping the strong demand. The vacancy rate in the second quarter fell 20 basis points year-over-year to just 4.4 percent, a figure that ranks below the long-term norm. Vacancies dwindled in thirty-eight of the 63 markets, and demand is growing at an annual rate of approximately 1.9 percent. CBRE anticipates that the average vacancy rate will hover in the same range throughout the year.

Overall, the second quarter was a clear success for commercial real estate, relative to the first quarter or no, and bodes well for the future. “Analysts are divided as to how much of the weakness in the first quarter was due to weather versus economic drag versus the fact that the first quarter is always slower,” Southard told Commercial Property Executive. “The data from the second quarter indicates that the remainder of the year will be better than the weather-beaten first quarter.”