Commercial real estate markets expected to grow
Real estate is not the healthiest sector for homeowners as they are seeing values fall and many now owe more on their home than it is currently worth, but in this climate, real estate investment veteran Jeff Brown opined here last night that the perfect storm is here for real estate investing, noting that “Real estate investors can now acquire new or near new 1-4 unit investment property in golden locations, with stellar price/rent ratios, while generating impressive cash on cash returns due to historically low interest rates, falling vacancy rates, and rising rents.”
Similarly, commercial real estate markets are projected to make a turn after a flat year, according to the National Association of Realtors (NAR) which forecasts that improving fundamentals will lead to an improved sector in 2012.
NAR chief economist, Dr. Lawrence Yun said there is little change in most of the commercial market sectors. “Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant’s market,” he said. “However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year. Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn’t ramp up, rent growth could potentially approach 7 percent over the next two years.”
SIOR index in line with NAR forecast
NAR forecasts that vacancy rates will drop in office, industrial, retail and multifamily markets and that commercial real estate will follow the general economic trends. The Society of Industrial and Office Realtors (SIOR) attitudinal survey of 231 local market experts is in line with NAR’s projections of the sector following macroeconomic trends, with 92 percent of respondents noting that the economy is having a negative impact on their local market but the SIOR index improved in the third quarter following a second quarter decline. The SIOR index remains below the level of 100 which indicates a balanced market, but prior to the last two quarters, it had seen six consecutive quarterly improvements.
Although construction activity remains low, and the SIOR index indicates it is lower than normal, 88 percent said it is a buyers’ market (in terms of development acquisitions) and that prices are below construction costs in 83 percent of markets.