With lackluster employment growth, third quarter fundamentals in REALTOR® commercial markets maintained a positive trajectory. However, the specter of government shutdown and the budget debate added headwinds to the market performance. The results of the October Commercial Real Estate Market Survey indicated modestly rising absorption and new construction, accompanied by changing vacancies.
Leasing activity increased 2.0 percent higher over the previous quarter. On the supply side, new construction maintained momentum, increasing 5.0 percent over the second quarter. Vacancies declined for industrial and hotel properties. Office vacancies inched up 9 basis points, to 17.8 percent, while retail availability rose 110 basis points, to 15.7 percent. Multifamily vacancy reached 7.3 percent, as new supply entered the market and the residential rental market added competition.
With sliding vacancies, landlords found fewer reasons to offer rent concessions. In addition, rental rates rose 2.0 percent during the second quarter. In terms of space requirements, tenant demand remained strongest in the 5,000 square feet and below, accounting for 70.0 percent of leased properties. Lease terms remained steady, with 36-month and 60-month leases capturing the bulk of the market.
For the full report along with respondent comments, please visit http://www.realtor.org/reports/commercial-real-estate-market-survey.
After gross domestic product revisions, business spending shows growing confidence in the first half of the year. The first quarter spending was down 4.6 percent, with a decline driven by a 25.7 percent drop in spending on commercial structures. However, the second quarter posted a much better performance, with an annual growth rate of 4.6 percent. Spending on commercial buildings rose 6.8 percent. Businesses also increased their spending on information processing and transportation equipment by 11.4 percent and 5.5 percent, respectively. The new component of business spending—intellectual property products—rose 3.9 percent in the second quarter, boosted by software and R&D.
Commercial REALTOR® markets posted accelerating growth in sales and leasing activity during the fourth quarter of 2012. Based on the results of the January Commercial Real Estate Market Survey, commercial practitioners closed the year on a more upbeat note. Commercial REALTORS® rated business opportunities in the fourth quarter 6.0 percent higher than the previous quarter.
Broader job growth has been slowing through the half point of the year and going into the third quarter. Many companies have also put expansion plans on hold, waiting to see what happens in the national and local economies. Professional and business services have provided a silver lining to the trends, maintaining demand for office space on a positive curve.
Net absorption of office space—a measure of demand—is projected to be 7.6 million square feet in the third quarter, and close the year at 24.1 million square feet. In response, completions of new office buildings have been trailing behind, constrained by the tight lending conditions of the post-recession financial landscape. Supply of office space is likely to total 5.7 million square feet in the third quarter and 13.7 million square feet for 2012.
With a projected gap of 10.3 million square feet between demand and supply of space in 2012, vacancy rates have been declining. Office availability for the third quarter is expected to decline to 16.1 percent. The downward trend is moving national vacancies towards 16.0 percent by the end of the year. The local markets with the lowest availability rates are Washington, D.C., with a vacancy rate of 9.4 percent, New York City, at 10.0 percent, and New Orleans, 12.8 percent. At the other end of the spectrum, Detroit, Phoenix and Las Vegas continue to slog it through rates above 25.0 percent.
Rent growth for office space will stay positive in 2012, although not as robust as predicted earlier, due to the general slowdown in the economy. Rent is expected to rise 2.0 percent for the year, a still-noticeable improvement over last year’s 1.6 percent.
Commercial real estate in REALTOR® markets continued on a stabilizing path during the second quarter of 2012. Based on the results of the July Commercial Real Estate Market Survey, market activity at the national level posted improvements compared with the first quarter of the year.