David Lereah, NAR's chief economist, said the commercial real estate market is responding to improvements in the overall economy. NAR President Al Mansell, CEO of Coldwell Banker Residential Brokerage in Salt Lake City, said investment returns are showing a positive performance in all of the commercial real estate sectors.
The NAR forecast for four major commercial sectors is based on analysis of data in 57 metro areas tracked, including the office, retail, industrial and multifamily markets. The forecast was produced with data provided by Torto Wheaton Research and Real Capital Analytics.
Net absorption of office space, which includes leasing of new space coming on the market as well as space in existing properties, is performing exceptionally well. With a decline in sublet and unused space, net absorption will nearly triple to 55.9 million square feet this year in contrast with only 20.0 million in 2003. An additional 50.4 million square feet are expected to be absorbed in 2005, with 59.7 million in 2006.
Office vacancy rates in the 57 markets tracked are likely to decline to 15.3 percent in 2005 and 14.1 percent in 2006 from 16.2 percent this year. Office rents for 2004 will be up about 1.0 percent, and then should rise 2.8 percent next year and another 3.3 percent in 2006.
In the retail sector, net absorption in the 57 metro areas tracked is estimated at 27.5 million square feet in 2004, more than double the 11.8 million last year; 33.6 million square feet are forecast for 2005 with 27.0 million in 2006. The most popular retail properties for investors are centers anchored by a grocery store.
The average vacancy rate for retail space should be 7.5 percent this year, down from 8.1 percent in 2003. Vacancies are projected at 6.8 percent next year and 7.5 percent in 2006. Retail rent growth is seen at 3.3 percent this year, with a rise of 4.4 percent in 2005 and 3.6 percent in 2006.
The industrial market varies greatly around the country but is experiencing a level of net absorption not seen since 2000, much of it build-to-suit, forecast at 144.4 million square feet in 2004 in the 57 markets tracked, up greatly from only 16.5 million last year. Net absorption should be at 110.5 million square feet next year and 132.1 million in 2006. The national vacancy rate is expected to decline to 11.0 percent this year from 11.6 percent in 2003, with projections for 11.1 percent next year and 10.8 percent in 2006. After slipping 0.7 percent this year, industrial rents are projected to rise 0.6 percent in 2005 and another 1.7 percent in 2006.
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