CBRE: Q2 Sees Demand Uptick Across the Board

LOS ANGELES—For commercial real estate, the numbers finally reflect the long-discussed promise of gathering strength in the economy. CBRE Group reported Monday that demand picked up strongly across the major property sectors in the second quarter.

“Commercial real estate leasing activity in Q2 2014 picked up from the weather-affected levels of the prior quarter,” says Jon Southard, managing director of CBRE's Econometric Advisors group. “The pace of demand can finally be described as good—without the caveat of 'for this recovery.' ”

In office, for example, the national vacancy rate declined 30 basis points to 14.5% during Q2. That compares to a 10-bp drop during the previous quarter. Industrial availability, too, dropped 30 bps during the quarter to 10.8%. Retail availability dipped 20 bps to 11.7%, while apartment vacancy has dropped 20 bps year over year to 4.4%.

“The office recovery continues to advance with the lack of development in most markets as well as strength in private-sector payrolls continuing to support occupancy growth,“ Southard says. “Continued private sector job growth will be key for further office market improvement and the strong jobs gains reported for June is an encouraging sign.”

The improving office picture continues to favor markets with a heavy concentrations of tech and energy tenants. Most dramatic was the improvement shown by St. Louis, down 210 bps, followed by Raleigh with a 170-bp decline; Oklahoma City, down 120 bps; San Jose, down 100 bps; and Orange County, down 100 bps.

Industrial's improvement, too, continues “as the economic expansion matures and gains more traction,“ says Southard. “Following a challenging start to 2014 for the US economy, we foresee more robust growth going forward as business conditions remain fundamentally healthy.” Industrial's availability rate has improved by 370 bps since its peak, and has now shown 16 consecutive quarters of improvement, according to CBRE.

Forty of the industrial markets measured by CBRE showed declines in availability while nine remained unchanged and 12 showed increases during Q2. Leading the way with declines in availability were Fort Lauderdale, down 110 bps; and Las Vegas, Nashville and Atlanta, each of which showed 100-bp decreases.

Retail availability rate has fallen 150 bps from its post-recession peak of 13.2%. Among markets measured by CBRE, 41 showed declining availability rates from Q1 to Q2, while 22 markets recorded flat or increasing rates. CBRE is predicting the retail sector, including neighborhood and community shopping centers, to decline by 11% by year's end.

For apartments, the market remains tight by historical standards, with the vacancy rate below the long-term norm, although CBRE is forecasting an increase to 4.7% by year's end. Vacancy rates declined in 38 of the 63 markets in CBRE's coverage, with the biggest Y-O-Y declines of 80 bps or more seen in Albuquerque, Jacksonville, Sacramento, Riverside, St. Louis, Fort Lauderdale, Atlanta, Cleveland, Las Vegas, Houston, Orange County and Ventura.

The markets with the largest year-over-year increases in vacancy—50 bps or better—included Greensboro, Norfolk, Salt Lake City, San Antonio, Birmingham and Greenville. Markets with the lowest vacancy rates (3% or below) included Oakland, San Jose, Portland, Minneapolis, Miami, Ventura, Boston, Providence, Newark and Pittsburgh.