WASHINGTON, DC - Commercial real estate market fundamentals are fairly stable, although investment is waning following a record year in 2007, according to the latest COMMERCIAL REAL ESTATE OUTLOOK of the National Association of Realtors. NAR Chief Economist Lawrence Yun said the commercial real estate market is holding essentially even. "We are seeing no significant changes in vacancy rates or rent growth, so the fundamentals in commercial real estate still seem to be respectable," he said. "Under normal circumstances, near-full occupancy coupled with positive rent growth would be of strong interest to investors, but we are not seeing that. The credit crunch has filtered into the commercial real estate market."
Patricia Nooney of St. Louis, chair of the Realtors(R) Commercial Alliance Committee, said the investment cycle appears to be turning. "It looks like investors are taking a wait-and-see attitude," she said. "Even with fairly stable fundamentals and capital available from institutional investors, it appears investor confidence has declined, and some private investors have had problems obtaining financing. Commercial real estate investment set a new record in 2007, but now that we are in a period of economic uncertainty, transaction volume is likely to decline."
Investment in commercial real estate in 2007 was $427.2 billion, up 39.2 percent from the previous record of $306.8 billion in 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics. NAR projects the investment dollar volume this year could drop by 30 to 40 percent, comparable to 2006 levels. The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics.
In the Multifamily Market: The apartment rental market (multifamily housing) is attracting risk-averse institutional investors. Of the record $98.6 billion spent in this sector last year, 40 percent of acquisitions were from institutional investors such as pension funds and life insurance companies. Private investors were equally active, accounting for another 40 percent of transactions. Many potential first-time home buyers continue to rent, placing downward pressure on vacancy rates and upward pressure on rents. The number of new multifamily units remains relatively high, due in part to the conversion of condo projects into rental buildings - notably in the Washington, D.C., area and South Florida.
Multifamily vacancy rates should average 4.8 percent in the fourth quarter, down from 5.1 percent in the fourth quarter of 2007. Average rent is seen to rise 5.3 percent in 2008, up from a 3.1 percent increase in 2007. Multifamily net absorption is estimated at 245,800 units in 59 tracked metro areas in 2008, up from 234,400 last year. The current national vacancy rate is 4.7 percent, below the 5.0 percent level which is considered landlord's market. The areas with the lowest apartment vacancies include Northern New Jersey, San Jose, Miami, Salt Lake City and San Diego, all with vacancy rates of 2.9 percent or less.
Source: PRNewswire.com