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Office and Warehouse Sectors Lead Continued Recovery of U.S. Commercial Real Estate Market, According to CoStar Group
While Velocity Slowed Slightly in Q1, Office, Industrial and
Retail Sectors All Posted Positive Net Absorption
WASHINGTON -- Although rising energy
prices and fiscal debt issues for both domestic and foreign governments
remain as clouds on the horizon, the U.S. commercial real estate market
is in the midst of a continued recovery being led by the office and
warehouse sectors, according to the latest research from CoStar Group.
CoStar, the commercial real estate industry's leading provider of
information and analytic services, today released its national market
research for the first quarter of 2012. The report showed that while
net absorption slowed slightly compared to the last half of 2011, rent
trends generally improved from prior quarters, supported by a lack of
new space being added to the market.
"We may not be out of the woods just yet, but the data we've compiled
for the first quarter certainly demonstrates an ongoing recovery and
points towards future growth," stated Walter Page, Director of Research
for CoStar's Property and Portfolio Research division. "While the
retail recovery was less pronounced than in the office and warehouse
sectors, we're witnessing positive net absorption across the board."
Office
In the first quarter of 2012, office markets witnessed solid net
absorption, little new construction and near zero growth in asking
rents.
"While the data shows near zero rent growth in the quarter, the
national vacancy rate of 12.9%, combined with the prospect for future
vacancy decline, suggests the scales are tipping toward generating
office rent growth," Page said.
Nationally, office net absorption was at 11.5 million square feet --
down from 16 million square feet in the fourth quarter of 2011, but
more than double the pace from the first quarter of last year. New
construction deliveries were exceptionally low at just 5 million square
feet, although construction activity is starting to rise with over 8
million square feet of new office starts in the quarter. Of the top
markets, all but Washington, DC, achieved a year-over-year decline in
vacancy, indicating the broad base for the office market recovery.
For the third quarter in a row, net absorption was very solid, with
Houston and Chicago leading the nation at 1.6 million square feet each.
Washington, DC, with negative 421,000 square feet of net absorption,
recorded the lowest level among the top metros.
Industrial
A sharp reduction in industrial vacancy, fueled by near zero net
completions of space and positive net absorption, has supported steady
to slightly rising asking rents.
In the first quarter, industrial vacancy fell to 9.4% nationally --
down 0.7 percentage points from one year ago. The reduction in vacancy,
which has supported a 1.5% annualized change in rent over the past
quarter, was mainly driven by positive net absorption of 20.9 million
square feet in the first quarter.
Of the largest U.S. warehouse markets, Chicago (2 million square feet),
Los Angeles (1.8 million square feet), Inland Empire (1.8 million
square feet) and Houston (1.2 million square feet) all exceeded 1
million square feet of net absorption. Together, these four metros
accounted for a third of demand growth, which is 10% over the market
share, as large box distribution markets continue to dominate new
warehouse demand.
Indicating a broad-based recovery, nearly all top warehouse markets
achieved occupancy gains compared to one year earlier, with the most
significant being the Inland Empire's 2.6%age point gain.
Retail
While the retail recovery was less pronounced, the sector did achieve
positive net absorption, a stable vacancy, and a near-stabilization of
rent. For the first quarter, vacancy nationally was unchanged at 7%,
compared to 7.3% one year earlier. Net absorption of 9.4 million square
feet was below the 16.2 million square feet of the fourth quarter.
Retail completions were exceptionally low at just 4.3 million square
feet, with a Salt Lake City urban retail project being one of the
largest deliveries this quarter.
"We forecast completions of retail space to remain depressed for the
year," Page said. "In-process construction continues to fall compared
to office and warehouse construction, which is rising slightly."
At the metro level, retail performance was more of a mixed bag than
other property types, with few standout markets. For example, market
rent over the past year ranged in a narrow band with most markets
showing a -5% to +2% change, as the impact of housing market distress
and Internet retailing has curtailed demand growth. For the quarter,
roughly one-third of the markets recorded negative net absorption,
suggesting that the retail recovery is still weak. Market vacancy rates
range from 2.8% in San Francisco to 12.1% in Phoenix.
About PPR
Property and Portfolio Research (PPR) provides unparalleled expertise
and objective thinking in analyzing and forecasting commercial real
estate markets. PPR sets the pace in offering independent research, a
unique set of analytic tools, and actionable insights to commercial
real estate investors on hundreds of global markets in North America,
the UK and Europe. Clients range from commercial banks and financial
institutions to pension funds and insurance companies, as well as
government and rating agencies.
With a dedicated commitment to providing the best in commercial real
estate research, PPR's widely respected knowledge of the markets allows
clients to stay ahead of market trends, act decisively, and feel
confident about their investment decisions. PPR is a division of CoStar
Group.
About CoStar Group, Inc.
CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider
of information and analytic services. Founded in 1987, CoStar conducts
expansive, ongoing research to produce and maintain the largest and
most comprehensive database of commercial real estate information. Our
suite of online services enables clients to analyze, interpret and gain
unmatched insight on commercial property values, market conditions and
current availabilities. Headquartered in Washington, DC, CoStar
maintains offices throughout the U.S. and in Europe with a staff of
approximately 1,500 worldwide, including the industry's largest
professional research organization. For more information, visit
www.costar.com.
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