Commercial Real Estate Remains Soft but Favors Business Expansion

Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion, according to the National Association of Realtors® (NAR).


Lawrence Yun, NAR chief economist, said fallout from the recession continues to impact commercial real estate. “Vacancy rates are beginning to level off in some sectors, but rent discounts and moderate levels of landlord concessions are widespread,” he said. “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 and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 600 local market experts,[1] shows vacancy rates are beginning to level, but rents remain depressed, and subleasing space is high.


The SIOR index, measuring 10 variables, rose 2.8 percentage points to 41.0 in the second quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the third consecutive quarterly improvement after nearly three years of decline; the last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007.


Fifty-seven percent of respondents expect improvements in the office and industrial sectors in the third quarter.


Commercial real estate development remains stagnant in all regions with low investment activity; 88 percent of respondents said it is virtually nonexistent in their markets, but development acquisitions are beginning to grow in many areas in what is described as a buyer’s market.


Looking at the overall market, vacancy rates will shift modestly in the coming year according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK.[2] The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.


Office Markets


Vacancy rates in the office sector, with high levels of available sublease space, are expected to increase from 16.7 percent in the second quarter of this year to 17.0 percent in the second quarter of 2011, and then ease later next year.


The markets with the lowest office vacancy rates in the second quarter were New York City, Honolulu and Long Island, N.Y., with vacancies around the 9 to 11 percent range.


Annual office rent should fall 2.7 percent this year and decline another 2.1 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is projected to be a negative 13.6 million square feet this year and then a positive 22.6 million in 2011.


Industrial Markets


Industrial vacancy rates are likely to decline from 14.1 percent in the second quarter of 2010 to 13.7 percent in the second quarter of 2011, and then continue to ease modestly as the year progresses.


The areas with the lowest industrial vacancy rates in the second quarter were Los Angeles, San Francisco and Kansas City, with vacancies ranging between 8 and 11 percent.


Annual industrial rent is estimated to drop 5.4 percent this year, and to decline another 4.7 percent in 2011. Net absorption of industrial space in 58 markets tracked is seen at a negative 31.7 million square feet this year and a positive 157.2 million in 2011.


Retail Markets


Retail vacancy rates should hold steady at 13.1 percent in both the second quarter of this year and in the second quarter of 2011, with a level pattern for most of next year.


Markets with the lowest retail vacancy rates in the second quarter include San Francisco, Honolulu and Miami, with vacancies of 7 to 8 percent.


Average retail rent is expected to decline 2.6 percent in 2010 and then flatten out, slipping 0.1 percent next year. Net absorption of retail space in 53 tracked markets is forecast to be a negative 2.3 million square feet this year and then a positive 6.4 million in 2011.


Multifamily Markets


The apartment rental market – multifamily housing – is benefiting from modestly higher demand. Multifamily vacancy rates are likely to decline from 6.0 percent in the second quarter of this year to 5.6 percent in the second quarter of 2011.


Areas with the lowest multifamily vacancy rates in the second quarter include San Jose, Calif.; Pittsburgh; and Philadelphia, with vacancies of less than 4 percent.


With additions from new construction, average rent should slip 0.6 percent in 2010, and then hold even in 2011. Multifamily net absorption is expected to be 105,200 units in 59 tracked metro areas this year, and another 138,000 in 2011.


The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.


The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.


Approximately 79,000 NAR and institute affiliate members specialize in commercial brokerage services, and an additional 263,000 members offer commercial real estate as a secondary business.


The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.


1 The SIOR Commercial Real Estate Index, conducted by SIOR and analyzed by NAR Research, is a diffusion index based on market conditions as viewed by local SIOR experts. For more information contact Richard Hollander, SIOR, at 202/449-8200.


2 Publication of additional analyses will be posted under Economists’ Commentary in the Research area of Realtor.org in coming days.


The next commercial real estate forecast and quarterly market report will be released on November 29.


Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data, charts and surveys also may be found by clicking on Research.

Visit my web site for real estate services and support: LawrenceYerkes.com [NJ/PA]
and visit Besthomes-NJ.com to find the latest New Jersey Real Estate property listings (Residential, Commercial, Multi-Family, Farm, Land, Investment).

Copyright 2010 by Lawrence Yerkes. All Rights Reserved.

Homeownership and Stable Communities Go Hand-in-Hand

Homeowners are more active in their communities, benefit from improved education opportunities, and report higher levels of self-esteem and happiness when compared to renters, according to leading research. A new report from the National Association of Realtors® (NAR), Social Benefits of Homeownership and Stable Housing, explores the impact of stable housing and the positive social outcomes resulting from homeownership.



“Homeownership is in investment in your future – home is where we make memories, build our lives and feel comfortable and secure,” said Vicki Cox Golder, owner of Vicki L. Cox Real Estate in Tucson, Ariz. “Owning a home has long-standing government support in this country because homeownership benefits individuals and families, strengthens our communities and is integral to our nation’s economy.”

NAR’s study identifies research from government, industry and academia that identified the relationship between homeownership and stable communities. Homeowners move far less frequently than renters, and therefore are embedded into the same neighborhood and community for longer. This allows for social cohesion, ultimately resulting in social benefits and stronger communities.


“Realtors® care as much about keeping families in their homes as they do about helping them find the home of their dreams,” said Golder. “Social benefits do not arise solely from ownership, but also from greater housing stability and social ties associated with less frequent moves among homeowners.”


Several research studies cited in the NAR report have found that homeownership has a significant impact on educational achievement. For instance, the decision by teenage students to stay in school is higher for those raised by parents who are homeowners compared to those whose parents are renters. Access to economic and educational opportunities are also more prevalent in neighborhoods with high rates of homeownership. Furthermore, studies have shown that changing schools frequently due to moving impacts negatively a child’s educational outcome.


Civic participation is another social benefit resulting from homeownership and stable housing. Homeowners are proven to be more politically active and are more likely to vote in local elections compared to renters. In addition, homeowners have a higher membership in voluntary organizations.


Studies have shown that homeowners are more likely to believe that they can do things as well as anyone else, and they self-report higher ratings on their physical health. “The research shows that homeowners report higher self-esteem and happiness than renters, resulting in better overall health, both physically and psychologically,” said Golder.

When it comes to property, homeowners have more invested both financially and emotionally. Property crimes affect homeowners directly, but nonviolent property crimes can impact the property values of the entire neighborhood. Therefore, homeowners are more motivated to deter crime by forming and implementing voluntary crime prevention programs. In addition, it is easier for homeowners to recognize perpetrators in stable neighborhoods because of extensive social ties. Unstable neighborhoods often display social disorganization which can lead to higher levels of crime.


Along with protecting their home and neighborhood from crime, homeowners spend more time and money maintaining their home than renters. Neighbors also influence other homeowners to improve their property, resulting in a better overall quality of the community.


“Homeownership certainly contributes to positive social outcomes, but those outcomes are truly a result of stable housing communities,” said Golder. “With strong social ties and a cohesive community, homeowners can enjoy not only the long-term financial benefit of owning a home, but also a more satisfying life – which is what’s really at the heart of the American Dream.”


To download a copy of the entire report, visit www.realtor.org/research/research/reportsbuysell.


The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.


Information about NAR is available at www.realtor.org. News releases are posted in the Web site’s “News Media” section in the NAR Media Center.

Visit my web site for real estate services and support: LawrenceYerkes.com [NJ/PA] and visit Besthomes-NJ.com to find the latest New Jersey Real Estate property listings (Residential, Commercial, Multi-Family, Farm, Land, Investment).

Copyright 2010 by Lawrence Yerkes. All Rights Reserved.