Commercial real estate recovery may continue this year

Commercial real estate market conditions should continue to improve this year and next year.

Conditions in the commercial real estate market were positive for property management companies during the final months of 2012, and this may set up a positive basis for continued strengthening this year.

Commercial real estate markets should see improvements during the next 12 months, as vacancy rates and rental prices are projected to ramp up during that period in the office, industrial, multifamily and retail sector, according to the National Association of Realtors.

The multifamily market should have the lowest vacancy rate in the next year. The current vacancy level is 4 percent, and this will fall to 3.9 percent in the next year, NAR's Commercial Real Estate Outlook noted. The rental levels in the sector should rise more than 2 percent this year, while it will surpass 2.6 percent next year.

"Rent increases have been higher in multifamily housing where supply is not matching strong demand, thereby allowing landlords to raise rents at faster rates," said Lawrence Yun, chief economist for NAR. "Overall commercial real estate leasing activity continued to grow in most markets during the closing months of 2012, which is modestly lowering vacancy rates in all of the commercial sectors early this year."

Office vacancies are projected to fall below 16 percent this year for a total 0.4 percent decline year-over-year, the report explained. The rental increase rate should improve to 2.6 percent this year, while it will inch up further to 2.8 percent in 2014. Retail vacancies will also decline this year, as it was 10.7 percent at the end of the first quarter. This will improve to 10.4 percent by next year. Rents may eclipse 2 percent by next year, after rising less than 1 percent in 2012.

The industrial sector will see its vacancy rate fall from the latest figure of 9.6 percent to 9.2 percent during the first three months of next year, the report added. Rents for this sector will rise to 2.6 percent next year.

Consumers experience confidence increase in January
Continued improvements in the rental and vacancy conditions for the commercial market may be helped by a gain in consumer sentiment about economic conditions. The Consumer Reports Index for January noted sentiment rose to 50.7, which was notably higher than the previous figure of 48.9. This showed confidence levels jumped back above the baseline of 50, which denotes positive conditions in the measurement.

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