Commercial real estate leasing patterns are showing steady but modest growth, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun, NAR chief economist, projects only modest changes in the coming year. “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

The gross domestic product rose from 2.5 percent in the second quarter to 2.9 percent in the third quarter. NAR’s recent Commercial Real Estate Quarterly Market Survey shows leasing activity rose 2 percent in the third quarter from the second quarter, and higher sales levels than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets,” he said. “Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million1 rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

NAR’s latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.

Office Markets
Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014.

The markets with the lowest office vacancy rates presently (in the fourth quarter) are New York City, with a vacancy rate of 9.8 percent; Washington, D.C., at 9.9 percent; Little Rock, Ark., 12.0 percent; and Nashville, Tenn., 12.9 percent.

Office rents should increase 2.4 percent this year and 2.5 percent in 2014. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial Markets
Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.9 percent; Los Angeles, 4.0 percent; Miami, 6.0 percent; and Seattle at 6.3 percent.

Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

Retail Markets
Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014.

Presently, markets with the lowest retail vacancy rates include Fairfield County, Conn., at 3.9 percent; San Francisco, 4.0 percent; Long Island, N.Y., 5.2 percent; and Northern New Jersey at 5.3 percent.

Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. As a rule, vacancy rates below 5 percent are considered a landlord’s market, with demand justifying higher rent.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 1.9 percent; Syracuse, N.Y., 2.0 percent; Minneapolis and San Diego, at 2.1 percent each; and New York City, 2.2 percent.

Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

The Commercial Real Estate Outlook is published by the NAR Research Division. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

WASHINGTON (November 25, 2013) – Although conditions were mixed across the country, pending home sales continued to move lower in October, marking the fifth consecutive monthly decline, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 0.6 percent to 102.1 in October from an upwardly revised 102.7 in September, and is 1.6 percent below October 2012 when it was 103.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings.

Lawrence Yun, NAR chief economist, said weaker activity was expected. “The government shutdown in the first half of last month sidelined some potential buyers. In a survey, 17 percent of Realtors® reported delays in October, mostly from waiting for IRS income verification for mortgage approval,” he said.

“We could rebound a bit from this level, but still face the headwinds of limited inventory and falling affordability conditions. Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors,” Yun said.

Modest gains in the Northeast and Midwest were offset by declines in the South and West. Yun notes there was a greater impact in the high-cost region of the West, where tight inventory also is holding back contract offers. He expects generally flat home sales going into 2014, but continued growth in home prices from limited inventory conditions.

The PHSI in the Northeast rose 2.8 percent to 85.8 in October, and is 8.1 percent above a year ago. In the Midwest the index increased 1.2 percent to 104.1 in October, and is 3.2 percent higher than October 2012. Pending home sales in the South slipped 0.8 percent to an index of 114.5 in October, and are 1.5 percent below a year ago. The index in the West fell 4.1 percent in October to 93.3, and is 12.1 percent lower than October 2012.

Yun said there are concerns heading into 2014. “New mortgage rules in January could delay the approval process, and another government shutdown would harm both housing and the economy,” he said.

Annual existing-home sales should be nearly 10 percent higher this year than in 2012, totaling just above 5.1 million, with a comparable volume expected in 2014. The national median existing-home price for 2013 is projected to be 11 percent above last year, and then cool to a 5.0 to 5.5 percent increase in 2014.

Lawrence Yun, Chief Economist with the National Association of Realtor warns what to expect if the federal government fails to increase its borrowing authority prior to when the U.S. Treasury says it will run out of money to pay its bills. The government could decide to pay the interest on its debt, which is about 3% of the GDP, and ensure that global investors of U.S. Treasury bonds are made whole. That would help protect the dollar as the world reserve currency. But to do that, the government would have to curtail spending elsewhere.

Yun says that home sales would be expected to drop by 350,000 to 450,00 units for each 100 basis-point increase in mortgage rates.

In a four minute video, Yun talks about the looming debt crisis in an interview with REALTOR Magazine. To watch the video and see the full story Click here