Commercial Real Estate is Stabilizing and Will Improve, Says NAR

The commercial real estate market will see slight improvements in 2011, according to National Association of Realtors (NAR) chief economist Lawrence Yun.

According to the economist, commercial real estate seems to be stabilizing. He says rising commercial leasing demand means overall vacancy rates have or are about to peak.

The retail sector should hold steady while office and industrial markets will have modestly declining vacancy rates in the New Year.

A NAR survey of more than 400 local market experts show vacancy rates are slowly improving though rents are still soft. An index measuring the impact of 10 variables rose to 42.6 in the third quarter, but needs to be at a level of 100 to be considered balanced.

The last time the commercial market was at 100 was in the third quarter in 2007.

Yun also predicts the improving economy will increase demand for home ownership and renting.

“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,” he said.

“Apartment rents could rise by 1 to 2 percent in 2011, after having fallen in 2009 and no growth in 2010,” Yun added.

According to the NAR commercial real estate outlook, vacancy rates in the office sector are forecast to decline from 16.7 percent in the fourth quarter of 2010 to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year. Office rent is expected to decline.

Industrial vacancy rates are projected to decline to 13.2 percent in the fourth quarter of 2011, and rent is projected to decline 3.4 percent in 2011.

Retail vacancy rates are projected to remain stable, expected to decline just 0.1 percent in 2011, and rent is projected to decline 0.3 percent in 2011.

The multifamily housing market is expected to decline to 5.8 percent in the fourth quarter of 2011, and apartment rent is projected to experience the only rise in 2011, estimated at 1.4 percent.

A posting on NAR’s real estate blog says that though the market remains uncertain, the number of deals is increasing, which is a good sign for the commercial market.

NAR is headquartered in Chicago, Illinois.

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