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NAR Projects Slight Increase for Apartment Vacancies; Rents to Rise

Vacancy rates in commercial real estate (CRE) markets are projected to continue declining at a moderate pace as rent grows modestly, according to the latest quarterly forecast from the ""National Association of Realtors"":http://www.realtor.org/ (NAR).


Nationally, NAR forecasts slight drops in vacancy rates across the office, retail, and industrial markets over the next year. Multifamily vacancies are expected to edge up very slightly, on the other hand.

In the office sector, vacancy rates are anticipated to decline from a projected 15.7 percent in Q3 2013 to 15.5 percent in Q3 2014. At the same time, office rents should increase 2.5 percent over 2013 and 2.8 percent in 2014, NAR said. Net absorption of office space is estimated to be 30.1 million square feet this year and 41.6 million square feet in 2014.

On the industrial side, vacancy rates ""are likely to fall from 9.3 percent in the third quarter of this year to 8.7 percent in the third quarter of 2014.""


Annual industrial rents are expected to rise 2.4 percent in 2013 and 2.6 percent in 2014, while absorption of industrial space is anticipated at 102.0 million square feet this year and 105.8 million square feet next year.

""Office vacancies haven't declined much because total jobs today are still below that of the pre-recession level in 2007, but rising international trade is boosting demand for warehouse space,"" said NAR chief economist Lawrence Yun.

In retail markets, vacancy rates are forecast to decline from 10.6 percent in the third quarter of 2013 to 10.0 percent in the third quarter of next year; average retail rents are forecast to increase 1.5 percent this year and 2.3 percent next year, with net absorption coming in at 11.8 million square feet and 18.2 million square feet, respectively.

Finally, the apartment rental market is expected to see vacancy rates climb to 4.0 percent in Q3 2014 from 3.9 percent in the third quarter of this year, ""with construction rising to meet increased demand."" Vacancy rates below 5 percent are usually considered a landlord's market in which high demand justifies higher rent.

On that token, NAR expects average apartment rents to rise 4.0 percent both this year and the next, with net absorption totaling 266,700 units in 2013 and 259,800 in 2014.

""Consumer spending has been favorable for the retail market, and rising construction is keeping apartment availability fairly even, though at low vacancy levels,"" Yun explained. ""That, in turn, is pushing apartment rents to rise twice as fast as broad consumer prices and average wage growth.""