Vacancies Will Peak in Early 2011

WASHINGTON, DC-The National Association of Realtors says market vacancies in most asset classes will peak at the end of this year or the beginning of next.

Multifamily, not surprisingly, will be leading the charge as increased demand for the product is beginning to appear, according to Lawrence Yun, NAR chief economist. "However, the office, warehouse and retail sectors continue to experience the delayed effects of the recession. These sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011."

Findings from NAR's Commercial Real Estate Outlook include:
• Vacancy rates in the office sector are projected to increase from 16.9% in the first quarter of this year to 17.6% in the first quarter of 2011, but should ease later next year. Annual office rent is likely to fall 2.3% this year and decline another 2.1% in 2011.
• The industrial sector is characterized with higher vacancies, more tenant concessions from landlords and a steeper decline in rental rates, with vacancy rates expected to rise from 14.3% in the first quarter of 2010 to 14.8% in the first quarter of 2011, before declining modestly as the year progresses. Annual industrial rent will probably drop 6.3% this year, and decline another 1.5% in 2011.
• Retail vacancy rates are expected to rise modestly from 12.6% in the first quarter of this year to 12.8% in the first quarter of 2011, and should hold at that level for most of next year. Average retail rent is projected to decline 1.5% in 2010, then edge up by 0.4% next year.
• Multifamily vacancy rates are forecast to decline from 7.3% in the first quarter of this year to 6.3% in the first quarter of 2011. With recent additions to supply, average rents are likely to slip 1.5% this year, and then rise 1.2%