Commercial market likely will continue slow recovery

Multifamily properties had a large rise in rents in recent months.

Many property management companies experienced a continued recovery in many sectors of the commercial real estate market during the past several months. However, the progress could slow considerably over the next year, according to a report from the National Association of Realtors.

The commercial real estate situation in many parts of the country was affected by a lack of serious employment growth, while other areas have had issues with financial institutions' lack of lending. The rent growth situation across most markets began to level out in the past few months, the report explained.

"Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector," said Lawrence Yun, chief economist for NAR.

Multifamily properties already experienced significant appreciation in rents, as low levels of inventory remain, the report said. Total vacancy rates should be around 4.3 percent during the end of the third quarter, which is far lower than other sectors' rates. This shouldn't change much by the third quarter of next year, when the figure may drop to 4.2 percent.

The industrial market should also have a small decline in vacancies during the next year. The third quarter figure this year should be approximately 10.7 percent, but this should fall to 10.5 percent by the same point in 2013, NAR explained.

"Industrial and warehouse space is holding on better because imports and exports have advanced," Yun noted. "While exports to Europe generally are down, trade has been robust with India, China and other Asian nations, along with Brazil, Mexico and our strongest trading partner – Canada."

The office market's vacancy rate will have a slightly larger decline, but it is still far behind other markets, the report said. While the third quarter of this year will have a figure slightly above 16 percent by its end, this will fall to nearly 15.5 percent one year later. Furthermore, the retail market should have a slight change, with vacancies dropping to 10.7 percent from the previous figure of 10.9 percent.

The report added that the vacancy rates for nearly all of these sectors are higher than the typical average. The only sector to be below average was multifamily properties.

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