Lawrence Yun, NAR chief economist, said rental housing demand has been exceptionally strong.  “Rent increases have been higher in multifamily housing where supply is not matching strong demand, thereby allowing landlords to raise rents at faster rates,” he said.  “Overall commercial real estate leasing activity continued to grow in most markets during the closing months of 2012, which is modestly lowering vacancy rates in all of the commercial sectors early this year.”

National vacancy rates over the coming year are expected to decline 0.4 percentage point in the office market, 0.4 point in industrial, 0.3 point for retail and 0.1 point in multifamily, with that sector experiencing the tightest availability.

“Business spending is expected to rise faster in 2013 because of record high corporate profits.  Low interest rates also are permitting companies to improve their balance sheets,” Yun said.

NAR’s latest Commercial Real Estate Outlook¹ offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets.  Historic data for metro areas were provided by REIS, Inc.,² a source of commercial real estate performance information.

Office Markets

Vacancy rates in the office sector are forecast to fall from a projected 16.0 percent in the first quarter to 15.6 percent in the first quarter of 2014.

The markets with the lowest office vacancy rates presently (in the first quarter) are Washington, D.C., with a vacancy rate of 9.4 percent; New York City, at 9.6 percent; and Little Rock, Ark., 12.1 percent.

Office rents should increase 2.6 percent in 2013 and 2.8 percent next year, following a 2.0 percent gain in 2012.  Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is expected to total 34.0 million square feet this year and 42.3 million in 2014.

Industrial Markets

Industrial vacancy rates are likely to decline from 9.6 percent in the first quarter of this year to 9.2 percent in the first quarter of 2014.

The areas with the lowest industrial vacancy rates currently are Los Angeles and Orange County, Calif., each with a vacancy rate of 3.6 percent; Miami, 5.6 percent; and Seattle at 6.0 percent.

Annual industrial rents are projected to rise 2.3 percent this year and 2.6 percent in 2014, after increasing 1.7 percent last year.  Net absorption of industrial space nationally is likely to total 121.8 million square feet in 2013 and 103.5 million next year.

Retail Markets

Retail vacancy rates are forecast to slide from 10.7 percent in the first quarter of the year to 10.4 percent in the first quarter of 2014.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.5 percent; Fairfield County, Conn., at 4.2 percent; and Orange County, Calif., 5.2 percent.

Average retail rents will probably rise 1.5 percent in 2013 and 2.1 percent next year, following a 0.8 percent gain in 2012.  Net absorption of retail space is seen at 11.9 million square feet in 2013 and 16.4 million next year.

Multifamily Markets

The apartment rental market – multifamily housing – should see vacancy rates ease from 4.0 percent in the first quarter to 3.9 percent in the first quarter of 2014; vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.0 percent; New York City, 2.1 percent; and Minneapolis and Syracuse, N.Y., each at 2.5 percent.

Average apartment rents are expected to increase 4.6 percent this year and 4.7 percent in 2014, after rising 4.1 percent in 2012.  Multifamily net absorption is projected at 270,600 units in 2013 and 253,200 next year.

The Commercial Real Estate Outlook is published by the NAR Research Division.  NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

The NAR commercial community includes commercial members; commercial real estate boards; commercial committees, subcommittees and forums; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors^® Land Institute, Society of Industrial and Office Realtors^®, and Counselors of Real Estate.

Approximately 78,000 NAR and institute affiliate members specialize in commercial brokerage and related services, and an additional 232,000 members offer commercial real estate services as a secondary business.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.  For additional commentary and consumer information, visit www.houselogic.com and http://retradio.com.

¹Additional analyses will be posted under Economists’ Outlook in the Research blog section of Realtor.org in coming days at: http://economistsoutlook.blogs.realtor.org/.

²Beginning in the third quarter of 2011, NAR commercial forecasts have been generated based on historical data provided by REIS, Inc., and do not correspond with prior historical information from previous forecasts.  This source permits coverage of more metro areas than were previously covered.

The next commercial real estate forecast and quarterly market report will be released on May 28 at 10:00 a.m. EDT.

Information about NAR is available at www.realtor.org. This and other news releases are posted in the “News, Blogs and Videos” tab on the website. Other commercial information and reports are posted in the Commercial Research area of the “Research and Statistics” tab.

Positive underlying fundamentals continue to support all of the major commercial real estate sectors, but a slowdown in job creation and ongoing tight loan availability has tempered growth in some areas, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun, NAR chief economist, said there are mixed results among the commercial sectors. “Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector,” he said. “Industrial and warehouse space is holding on better because imports and exports have advanced. While exports to Europe generally are down, trade has been robust with India, China and other Asian nations, along with Brazil, Mexico and our strongest trading partner – Canada.”

Although still positive, dampened demand is slightly moderating rent growth with the exception of the multifamily market.  “Sharply higher demand for apartments is causing rents to rise at faster rates,” Yun said.  “A return to normal household formation will mean even lower vacancy rates and higher rents in the future.”

The current commercial real estate cycle has been driven by shifts in demand without an oversupply of new construction.  “The difficulty small businesses have in getting commercial real estate loans for leasing or purchase is keeping a lid on demand,” Yun explained.  “Multifamily is the only commercial sector with a notable growth in new space, with some lending provided through government loans.”

With the exception of multifamily, vacancy rates remain above historic averages seen since 1999. Over that time frame the typical vacancy rate has been 14.4 percent for the office market, 10.1 percent in industrial, 8.1 percent for retail and 5.8 percent in multifamily.

Vacancy rates are marginally declining and rents are modestly rising in all of the sectors, but significant changes in the outlook are unlikely before the end of the year. Many corporate decisions on spending and job hiring are on hold given uncertainty over the upcoming elections, whether Congress will effectively avoid a “fiscal cliff,” and unsettled issues such as health care and banking/financial regulations.

“Overall companies hold plentiful cash reserves, but they are hesitant to hire without clarity over how these outstanding issues will impact the bottom line,” Yun said.

“Commercial real estate gains could be thwarted if lending from small and community banks dry up from excessive regulatory compliance costs, and if international big-bank capital rules are applied to smaller lending institutions,” Yun added.

NAR’s latest Commercial Real Estate Outlook¹ offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets.  Historic data for metro areas were provided by REIS, Inc.,² a source of commercial real estate performance information.

Office Markets

Vacancy rates in the office sector are expected to fall from an estimated 16.1 percent in the third quarter to 15.6 percent in the third quarter of 2013.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.4 percent; New York City, at 10.0 percent; and New Orleans, 12.8 percent.

Office rent is projected to increase 2.0 percent this year and 2.6 percent in 2013.  Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, should be 24.1 million square feet in 2012 and 47.8 million next year.

Industrial Markets

Industrial vacancy rates are forecast to decline from 10.7 percent in the third quarter of this year to 10.5 percent in the third quarter of 2013.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.6 percent; Los Angeles, 4.8 percent; and Miami at 6.8 percent.

Annual industrial rent is likely to rise 1.7 percent in 2012 and 2.4 percent next year.  Net absorption of industrial space nationally is seen at 59.8 million square feet this year and 67.2 million in 2013.

Retail Markets

Retail vacancy rates are projected to decline from 10.9 percent in the third quarter to 10.7 percent in the third quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.8 percent; Fairfield County, Conn., 3.9 percent; and Long Island, N.Y., and Orange County, Calif., both at 5.3 percent.

Average retail rent is forecast to rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space should be 10.3 million square feet this year and 20.1 million in 2013.

Multifamily Markets

The apartment rental market – multifamily housing – is expected to see vacancy rates drop from 4.3 percent in the third quarter to 4.2 percent in the third quarter of 2013; vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are Portland, Ore., at 2.0 percent; New York City and Minneapolis, both at 2.2 percent; and New Haven, Conn., and San Jose, Calif., both at 2.4 percent.

Average apartment rent is likely to increase 4.1 percent in 2012 and another 4.4 percent next year.  Multifamily net absorption should be 219,300 units this year and 236,600 in 2013.

The Commercial Real Estate Outlook is published by the NAR Research Division for the commercial community.  NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.

Approximately 78,000 NAR and institute affiliate members specialize in commercial brokerage and related services, and an additional 232,000 members offer commercial real estate services as a secondary business.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

The number of commercial sale transactions reported for the first quarter of 2012 has increased 23.8% compared to the first quarter of 2011.  Retail and office transactions reveal a large increase in activity, with increases of 45.8% and 40% compared to 2011.  The industrial sector, which showed huge growth in 2011, reported two fewer transactions in the first quarter of 2012, than in 2011.

Overall commercial real estate sales volume correlates directly with the  slow down in the industrial sector.  While office sales soared with a 109% increase over 2011, and retail showed steady growth at 7.2%, sales volume for industrial properties declined by 63.9%.

The slow down in the industrial sector is not necessarily indicative of a lack of demand for industrial property. “The industrial sector is experiencing something that hasn’t been seen for several years – the need for new construction of manufacturing and warehouse space.  The current inventory of larger footprint industrial space is extremely limited, ” stated 2012 CAR President Mary Anne Wisinski-Rosely, of NAI Wisinski West Michigan.  “The office and retail sectors increases in both the number of transactions and volume demonstrates the strength and viability of doing business in West Michigan.”

PricewaterhouseCoopers (PwC), along with the ULI published “Emerging Trends in Real Estate 2012” and ranked Detroit dead last among U.S. cities in terms of investment and development among other things.  Stu was part of a Local Response Panel and discussed recent opportunities in West Michigan.  Stu’s goal, along with the rest of the Forum, was to refute the claims of the PwC report. “Even though the PwC numbers show Detroit is lagging behind the rest of the country, great things are happening here,” Stu says. “I especially wanted to demonstrate that great things are happening in West Michigan as well. We are sustainable and growing in many sectors.”

Some of the topics Stu covered include the manufacturing rebound, the growing medical sector, food manufacturing, and the advanced battery production sector for vehicle use.

• Low demand for development (Commercial construction at a 50 year low)
• Household formation is up, but still remains low (High unemployment rate for household formers)
• GDP has rebounded, but still worse off (3%) on a per capita basis due to a 3% increase in population
• The economy is adding jobs, but we still have a long way to go (Have only recovered 21% of jobs across the nation)
• Pent-up households are declining
• Vacancy rates are declining slightly across the board (Industrial, Office, Multi-Family)
• Retail sales are back up (Still 3% less due to population increase)

To listen to the web conference in its entirety, click here to register.

***

Dr. Linneman, widely recognized as one of the leading strategic thinkers in the real estate industry, was recently cited as one of the 25 most influential people in real estate by Realtor Magazine. He serves as Principal of Linneman Associates.

Employers in all 50 states expect the bleak employment picture to perk up during the three-month period ending in September. In fact, hiring managers in dozens of metropolitan areas anticipate considerable increases in hiring, while others present a darker forecast.

The employment services firm ManpowerGroup has surveyed more than 18,000 employers in 100 metropolitan areas to find out who’s hiring, who’s firing and who plans to maintain their current staff levels in the third quarter of 2011, July through September. Of the surveyed employers, 20% anticipate an increase in staffing levels in their second quarter hiring plans, while 8% expect a decrease in payrolls. The difference between those numbers gives you what ManpowerGroup calls a net employment outlook of 12%–or 8% when seasonally adjusted, which is still up from 6% for the same period last year. Sixty-nine percent of employers expect no change in their staffing, and the final 3% of employers are uncertain.

The survey reveals that the metropolitan area with the most optimistic forecast of all for hiring this summer is Grand Rapids-Wyoming, Michigan.

“This is the strongest outlook we’ve seen in the Grand Rapids-Wyoming market in almost three years,” says Melanie Holmes, a vice president at ManpowerGroup. “The market results are considerably more optimistic than last quarter and one year ago. Among our clients, we’ve seen real strength among manufacturing employers as well as a demand for clerical and customer service support.”

The Grand Rapids-Wyoming region enjoys a 24% net employment outlook, the percentage of employers that expect to add employees (30%) minus the percentage that expect to reduce their workforce (6%). Another 61% said they anticipate no change, and 3% didn’t know.

“This does not come as a surprise,” says Kevin Stotts, vice president of community programs at the Grand Rapids Area Chamber of Commerce.  “The employers I have spoke with, either large or small, have been very optimistic over the past several months.  In fact, a persistent challenge with many employers in the area has been finding qualified talent to meet their needs.  While specific sectors may not have rebounded as quickly, most are doing better than 2010, which was a strong year.”

To read the rest of the Forbes article, please click here.