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Commercial Real Estate Trends

Written by Carla Hill on Tuesday, 01 March 2011 6:00 pm
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Commercial real estate hasn't been exempt from the pain felt across much of the real estate industry in the last few years. Yet, according to the latest reports, it may be stabilizing.

Lawrence Yun, National Association of Realtors' chief economist, said a pullback in construction is helping to stabilize the market. "Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space," he said. "This means vacancy rates could fall quickly from any increase in demand for commercial space."

With a renewal of job growth should come increased apartment rent, says Yun. Supply and demand rule the rising and declining of rent. And the demand of the younger population entering independence, and the housing market, may lead to a rise in demand and prices.

The rise is expected to be around 3.4 percent this year and 4.2 in 2012.

"Rising apartment rent in combination with rising oil prices could push the overall inflation rate beyond a comfort level, which could then force the Federal Reserve to raise interest rates later this year or early in 2012," Yun added.

Retail markets see the silver lining as well, with vacancy rates expected to drop marginally from 13.0 percent to 12.9 percent. Some areas are faring better than others. San Francisco, Miami, Honolulu, and Long Island, N.Y. have vacancy rates considerably lower at 7 to 8 percent.

For now, average retail rent is expected to decline 0.9 percent in 2011. Experts see a rise on the horizon, however, in 2012.

Office markets are still struggling, as well, but a decline is expected. According to the NAR, "Vacancy rates in the office sector are forecast to decline from 16.5 percent in the first quarter of this year to 16.0 percent in the first quarter of 2012."

The lowest vacancies are see in New York City and Honolulu, with vacancies near 8 to 9 percent.

As job growth is experienced across the nation, vacancy rates should begin to decline across all sectors, though real relief may be some distance off in our future.

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