Recent Declines in Commercial Vacancy Rates


Recent Declines in Commercial Vacancy Rates

The U.S. commercial real estate market saw growth in every property type in Q3 2014 — from office to industrial structures — and some analysts are calling 2014 one of the best performing years for the sector since the end of the recession, according to CBRE Group.

The firm said the vacancy rate decreased 14.1 percent in the third quarter - the largest drop since the second quarter of 2006. Managing Director of CBRE’s Econometric Advisors Jon Southard said the declining vacancy rates are a sign that the real estate recovery is picking up due to increased demand. Since the recession, demand has increased as tenants for office buildings have a more positive outlook about business expansion and have been looking to grow their office spaces.

According to Statista, the commercial property vacancy rate for offices is expected to see a downward trend from 2014 into the new year. The office vacancy rate is forecast to total 12.6 percent in 2014 and later decline to 12 percent in 2015.

Southard said increasing payrolls for employers is resulting in decreasing vacancy rates for office buildings. With the potential for upward movement in the commercial real estate market, Southard said 2014 could be best year for the U.S. office market after the end of the recession.

Industrial Property Demand Rising

In addition to office vacancy rates dropping significantly, the industrial market also showed improvements, including in cities especially hit hard by the recession, such as Detroit. The Motor City has recently been a popular destination for commercial real estate investors, especially for foreign nationals who are buying factories and other industrial facilities, NBC News reported.

Like for office spaces, commercial property vacancy rates for the industrial segment will see gradual declines in the next couple of years. While the industrial vacancy rate is projected to be 10.3 percent this year, according to Statista, this percentage will drop to 10.2 percent in 2015 and stay the same through 2016.

“The nation’s industrial sector continues to impress as the economic expansion has been especially robust in the sectors that affect demand for industrial space,” Southard said in a statement. “We foresee ongoing strength in the industrial market as conditions remain encouraging for further growth.”

NAR Predicts Rise in Rents for Office, Industrial Real Estate

Higher employment and optimism about economic growth may continue to accelerate investment activity and lead to more demand for office, industrial and other commercial space, The Wall Street Journal reported.

The National Association of Realtors believes the commercial real estate sector will see gains in 2015. The NAR predicts office vacancy and industrial vacancy rates will decrease. The organization also anticipates annual rents will rise slightly for both segments of the market.

“Solid economic growth in the third quarter proved that the second quarter wasn’t an anomaly, as business spending increased, commercial construction rose and the labor market continued to make positive strides,” said Lawrence Yun, chief economist for NAR. “Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects.”

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