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Commercial Real Estate Forecasted to Improve

Written by Carla Hill on Wednesday, 11 April 2012 7:00 pm

The latest National Association of Realtors quarterly commercial real estate forecast indicates that all major commercial real estate sectors are seeing improved fundamentals.

Lawrence Yun, NAR chief economist, said vacancy rates are improving in all of the major commercial real estate sectors. "Sustained job creation is benefiting commercial real estate sectors by increasing demand for space," he said. "Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest."

The rental market has undergone some dramatic changes since the real estate bubble burst several years ago. Recession conditions and continued lagging in the economic recovery have led to more renters and subsequently rising rental rates

Over the next year vacancy rates are expected to decline even further. The office sector is forecasted to see a 0.4 percent decline. The industrial real estate market is forecasted for an 0.8 percent decline and 0.9 percent in the retail sector. The multi-family rental market is expected to see a 0.2 percent decline this year.

This projection will continue to increase the role of the landlord demanding bigger rent increases.

After rising 2.2 percent last year, average apartment rent is expected to increase 3.8 percent in 2012 and another 4.0 percent next year. Multifamily net absorption is forecast at 209,900 units this year and 223,600 in 2013.

"Household formation appears to be rising from pent-up demand," Yun said. "The tight apartment market should encourage more apartment construction. Otherwise, rent increases could further accelerate in the near-to-intermediate term."

Vacancy rates for the multi-family market, specifically, are likely to drop from 4.7 percent this first quarter to 4.5 percent in the first quarter of 2013.

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