Amid ongoing concerns about both the national and global economy, the commercial real estate sector continues to make slow but consistent strides in improvements. Yet it has a long way to go with all subsectors except apartments still having double-digit vacancy rates. Retail space continues to lag behind all of the other sectors.
According to CBRE (the worlds largest commercial real estate firm and only commercial real estate firm in the S&P 500) office vacancies stood at 15.7 percent. Obviously, still very high but at the lowest level since 2009. This remains well above the prerecession vacancy rate of 12.4 percent. Helping drive a lower vacancy rate are lease concessions and the fact that new construction remains at record lows. If not for these effects, the continuing poor economy would almost certainly drive more vacancies.
Apartments continue as the bright spot in commercial properties with a national vacancy rate of only 4.8%. Some markets, such as Boston, Pittsburg, San Jose, and Minneapolis have apartment vacancy rates of less than 3.5%. Rent increases are expected to continue in the majority of markets across the country throughout 2012 and into the foreseeable future. New apartment construction is experiencing growth but all indications are that market growth will exceed what is being built.
The retail market remains stalled at a national vacancy average of 13.0 percent. What is unsettling about the retail market is that absorption is approximately equal to the very low rate of new properties coming onto the market. Most markets remain close to where they were a year ago.
Vacancies in the industrial sector remain high but unlike the retail market, this is the eight consecutive quarter of improvement at 13.2 percent. For large metropolitan areas, twice as many reported falling vacancy rates than reported increases for the second quarter of 2012. One encouraging observation is that cities like Indianapolis, Memphis, and Detroit saw significant improve exceeding a full percentage point.

All the Best,

Peter Vekselman

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