The commercial real estate market will see growth in 2012, according to the National Association of Realtors (NAR), which recently indicated that improving fundamentals will fuel growth next year despite a relatively flat performance in 2011.
The NAR predicted that the industrial real estate sector will see vacancy rates decline from 12.3 percent at the end of 2011 to 11.7 percent during the next 12 months, while rents will recover from a 0.5 percent drop this year to climb 1.8 percent in 2012. Net absorption will be lower next year. The industrial sector reportedly moved in step with larger economic trends this year, as did the office sector.
A survey by the Society of Industrial and Office Realtors found more than 90 percent of experts contacted said the national economy negatively impacted their local market. Office properties experienced a rent increase of 1.4 percent this year, and NAR projects rents will grow another 1.7 percent in 2012. Absorption is also expected to increase. Vacancies, according to predictions, will go from 16.7 percent in the fourth quarter of this year to 16.1 percent in the fourth quarter of 2012. The lowest reported vacancy rate for the industrial sector was 5.2 percent in Los Angeles, compared to a low of 9.3 percent in Washington, D.C., for the office sector.
"Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn't ramp up, rent growth could potentially approach 7 percent over the next two years," said NAR chief economist Lawrence Yun.
The NAR predicts multifamily market vacancy rates will dip from 5 to 4.3 percent in the coming year, while rents grow 2.5 percent this year and another 3.5 percent in 2012. Unlike the other sectors, the lowest reported multifamily vacancy rates are below 3 percent, with Minneapolis leading at 2.4 percent.
Despite the positive outlook, there are some questions among multifamily experts and stakeholders. Multifamily Executive recently reported developers and others are questioning whether the current trend in favor of larger numbers of smaller units, favoring single-bedroom apartments more than in the past, is going to last.
Some experts suspect the pressures and preferences encouraging smaller units will abate, meaning that overproducing such apartments now could unbalance the sector in the future if consumer desires do change.