Smith: The fiscal cliff could bring
the recovery to a halt.

WASHINGTON, DC-Fundamentals in the commercial real estate sectors continue to improve as the relatively small amount of new space coming online is being easily absorbed, notes a new National Association of Realtors quarterly commercial real estate forecast. However, NAR’s forecast is based on assumptions that a resolution to the fiscal cliff is reached and borrowers have continued access to lending. If either or both of these situations unfold adversely, all bets could be off.

First the (relatively) good news: Vacancy rates over the next four quarters are forecast to decline 1.0 percentage point in the office market, 0.6 point in industrial, 0.2 point for retail and 0.1 point in multifamily.

Rents are also posting gains, NAR said. Office rent is expected to increase 2% in 2012 and 2.5% in 2013. Net absorption is expected to total 49 million next year. Annual industrial rent is forecast to rise 1.7% in 2012 and 2.2% next year, with net absorption projected to total 89.6 million in 2013.

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For retail, the average rent should increase 0.8% this year and 1.4% in 2013. Net absorption of retail space is targeted at 19.8 million in 2013. Finally, average apartment rents are slatted to increase 4.1% in 2012 and another 4.6% next year. Multifamily net absorption is likely to be 234,600 in 2013, NAR said.

To be sure, these numbers pale in comparison to pre-crash levels. “I think we all had expected the recovery to proceed faster than it has been,” NAR economist Jed Smith tells “However, overall, the recovery is still moving forward.”

NAR, though, made its forecast on the assumption that Congress and the White House would come to an agreement on the fiscal cliff by year’s end. “If the fiscal cliff does happen, then unemployment will rise to 10% or 11%,” Smith says. “Under those circumstances, we would not expect to see the real estate recovery continue.”

Another wild card is the implementation of Dodd-Frank, Smith says. “Something that’s being discussed increasingly is the availability of financing,” he notes. “There are a number of regulations for lenders, especially for local and regional banks, that still have to be written. The concern is that these regulations will increase costs and tighten liquidity.” That too could impact NAR’s forecast, he says.