Growth in Commercial Real Estate Markets Expected in 2012

The name of the game lately is optimism. In its most recent report, the NAR asserted that while commercial real estate markets have been relatively flat in 2011, improving fundamentals should show a more positive trend in 2012.

November 29, 2011
By Nicholas Ziegler, News Editor

The name of the game lately is optimism – and the National Association of Realtors is keeping that trend alive. In its most recent report, the NAR asserted that while commercial real estate markets have been relatively flat in 2011, improving fundamentals should show a more positive trend in 2012. The NAR predicts measurable declines in vacancy rates across all major sectors, comparing the fourth quarter of this year to the fourth quarter of 2012. Office vacancies should drop 0.6 percent; industrial, 0.4; retail, 0.8; and multi-family, 0.7.

Lawrence Yun, chief economist for the NAR, said there is currently little changing in commercial real estate, that situation will change in the coming months. “Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant’s market,” he said. “However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year.”

Attitudes, then, will also play a significant role in the country’s economic recovery. While the number of available jobs may increase, it’s going to take a change on a macro level to see lasting growth. The Society of Industrial and Office Retailers, in its SIOR Commercial Real Estate Index, measured those attitudes across 231 local-market experts. A full 92 percent of respondents feel that the national economy is having an effect on their markets.

Even so, the index did see a rise to 55.5 in the third quarter, following a decline of 2.6 points in the previous quarter. A level of 100 represents a “balanced marketplace,” which was last seen in the third quarter of 2007.

The NAR’s report went on to describe individual sectors. Office markets, as Yun mentioned, are expected to see vacancies decline to 16.1 percent by the fourth quarter of 2012. Rents, accordingly, are expected to increase by 1.7 percent next year nationwide. “Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is projected to be 20.2 million square feet this year and 31.7 million in 2012,” the report noted.

Industrial vacancy rates, similarly, are expected to decline to 11.7 percent in the fourth quarter of 2012. The areas with the lowest current rates are Los Angeles, with a vacancy rate of 5.2 percent; Orange County, Calif., with a rate of 5.7 percent; and Miami, at 8.4 percent.