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Commercial Real Estate Market Remains Soft

Paul Partyka |

WASHINGTON, D.C. — If you’re considering adding a new location, now may be the time, according to the National Association of Realtors (NAR). Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion.
“Vacancy rates are beginning to level off in some sectors, but rent discounts and moderate levels of landlord concessions are widespread,” says Lawrence Yun, NAR’s chief economist. “This is very much a tenant’s market, which is quite favorable for businesses that are considering expansion. It’s also encouraging that there is a modest improvement in the sentiment of commercial real estate practitioners.”
The Society of Industrial & Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 600 local market experts, shows vacancy rates are beginning to level off, but rents remain depressed and subleasing space is high. The SIOR index, measuring 10 variables, rose 2.8% to 41 in the second quarter, but remains well below a level of 100 that represents a balanced marketplace. The last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007.
Commercial real estate development remains stagnant in all regions with low investment activity; 88% of respondents say it’s virtually nonexistent in their markets, but development acquisitions are beginning to grow in many areas in what is described as a buyer’s market.
More specifically, retail vacancy rates should hold steady at 13.1% in the second quarter of this year and in the second quarter of 2011, with a level pattern for most of next year, NAR reports. Markets with the lowest retail vacancy rates in the second quarter include San Francisco, Honolulu and Miami, with vacancies of 7% to 8%.
Average retail rent is expected to decline 2.6% in 2010 and then flatten out, slipping 0.1% next year. Net absorption of retail space in 53 tracked markets is forecast to be off 2.3 million sq. ft. this year and then rise 6.4 million sq. ft. in 2011.

About the author

Paul Partyka

American Coin-Op

Paul Partyka was editor of American Coin-Op from 1997 through May 2011.

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