Commercial Property Vacancy Near Peak as U.S. Economy Grows, Realtors Say
U.S. commercial property vacancies may have peaked, led by a rebound in apartment buildings, as an improving economy spurs more demand for space, according to the National Association of Realtors.
“The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out,” Lawrence Yun, chief economist of the real estate group, said in a statement today. “Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011.”
U.S. gross domestic product grew by 2.5 percent in the third quarter, more than a previous estimate of 2 percent, the Commerce Department said last week. An improving economy increases commercial real estate occupancies as employers expand their businesses and add jobs.
The vacancy rate for apartment buildings will decline to 5.8 percent by the end of next year from 6.4 percent in the current quarter, according to the Realtors group’s forecast. Apartment rents may increase 1 percent to 2 percent in 2011, after no growth this year, Yun said in the statement.
The Realtors association predicts office vacancy rates will fall to 16.4 percent in the fourth quarter of 2011 from 16.7 percent at the end of 2010. Industrial vacancies may drop to 13.2 percent from 13.9 percent.
Retail Little Changed
Retail space may have the smallest decline in vacancies, with the rate slipping to 13 percent at the end of 2011 from 13.1 percent this quarter, the group said.
U.S. commercial real estate is showing signs of recovery as delinquencies on commercial mortgage-backed securities rise at a slower pace, Standard & Poor’s said in a statement today. The delinquency rate on loans packaged and sold as bonds climbed 3 percent in the third quarter, compared with a 14 percent increase in the second quarter and a 30 percent jump in the first three months of the year, Standard & Poor’s said Nov. 23.
“Property fundamentals are improving, investment capital is slowly flowing back into the sector, commercial mortgage originations are increasing, and demand for CMBS issuance is gaining traction,” Standard & Poor’s said in the report today.
U.S. commercial real estate prices gained 4.3 percent in September from the previous month, the biggest increase in a decade of records, Moody’s Investors Service said Nov. 22. The Moody’s/REAL Commercial Property Price Index rose 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said. The measure had fallen to an eight-year low in August.
To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.
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