Commercial real estate is benefiting from stronger job growth, which will lead to stronger vacancy rates in the coming year, according to the National Association of Realtors’ quarterly commercial Real Estate Outlook. This will benefit three of the four major commercial real estate sectors with the exception of multifamily, which will see vacancy rates increase slightly due to increased apartment construction to meet growing demand.
Industrial’s vacancy rates are poised for the strongest performance, dropping from 8.7 percent in the current quarter to 8.3 percent during the same period next year. Orange County, Calif., is the lowest in the country, at 3.4 percent, followed by Los Angeles, at 3.7 percent.
Retail follows, dropping from 9.7 percent to 9.5 percent. The leader in that sector is San Francisco, at three percent, followed by San Jose, Calif., and Fairfield County, Conn., at 4.5 percent. Office is forecast to dip from 15.8 percent to 15.7 percent, with Washington, D.C.’s 8.7 percent and New York City’s nine percent leading the way.
Multifamily’s uptick from 4.1 percent to 4.3 percent isn’t all bad news, as 211,000 new units are projected to come online this year. Increased supply, of course, is going to drive up vacancy rates. But rental rates are also rising. NAR says they will increase by 3.7 percent this year, followed by a 3.6-percent jump in 2016.
Rental rates are also projected to gain momentum in the other main commercial real estate sectors. Office will see a 3.3-percent lift this year and another 3.6-percent rise in 2016. For industrial, rises of three percent and 3.1 percent are projected, while retail is looking at a 2.5-percent increase followed by 3.1 percent.
On another bright note, payroll employment is expected to rise this year, unemployment is poised to continue to dip, and GDP will face an uptick in 2015.
The economy isn’t roaring back, but the progress it has made so far is benefiting commercial real estate.