WASHINGTON, DC-All of the major commercial real estate asset classes are showing improvement—with multifamily blazing the trail, the National Association of Realtors reports in its new quarterly Commercial Real Estate Market Survey.
In short, the worst really is over, NAR economist George Ratiu tells GlobeSt.com. “The commercial real estate industry has worked through its troubled properties much more efficiently than anyone would have expected a few years ago. Now we are seeing a steady improvement in property fundamentals, characterized by strengthened demand as measured by net absorption.”
The report holds bad news for at least one segment of the industry however—investors that have been lining up in the hopes of snagging distressed assets at opportunistic prices. It didn’t happen in the last two years, Ratiu says and such opportunities are unlikely to materialize this year or next, despite the fact that the majority of debt underwritten during the height of the market is now maturing.
“We don’t expect [maturing debt] to pose a significant threat to CRE. Banks have chosen to handle commercial debt judiciously and that will continue.”
NAR forecasts that commercial vacancy rates over the next year will decline 0.4 percentage points in the office sector, 0.8 points in industrial real estate, 0.9 points in the retail sector and 0.2 percentage points in the multifamily rental market.
Rents, as well, are on the rise. After rising 1.6% in 2011, office rents are expected to increase another 1.9% this year and 2.4% in 2013. Annual industrial rent is expected to rise 1.8% in 2012 and 2.3% next year. The average retail rent should rise 0.7% in 2012 and 1.2% in 2013.
The strongest asset class, not surprisingly, is multifamily. The apartment rental market is likely to see vacancy rates drop from 4.7% in the first quarter to 4.5% in the first quarter of 2013. Meanwhile, the average apartment rent is expected to increase 3.8% in 2012 and another 4% next year.
Separately, the Society of Industrial and Office Realtors reported a significant gain in its SIOR Commercial Real Estate Index.
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