Market Analysis
The National Association of Realtors says its economists show that across the United States, commercial demand is improving.
"Investment grade real estate has been changing hands at unprecedented rates," says Thomas Stevens, NAR president and senior vice president of NRT Inc.
According to The Commercial Real Estate Outlook, published by the NAR Research Division for the Realtors Commercial Alliance, investment in commercial real estate grew by 44% in 2005, to a record $268 billion of investment grade real estate, not counting transactions valued at less than $5 million.
The report projects that office vacancies nationwide in the fourth quarter will drop to about 11%, from 13.6%. Office rents are expected to rise 5% in 2006.
Another part of the report that might show a glimpse of a good market is the amount of Realtors owning property. Of all NAR members, 13% hold an ownership interest in at least one commercial structure, and 39% own residential properties for investment in addition to their primary residence.
Other highlights of the report include:
• A prediction that new industrial construction will grow by 20%. Industrial vacancy rates are set to fall to an average of 8% in the fourth quarter of 2006, from 9.6% in the last quarter of 2005. Industrial rents are expected to grow 3.8% this year.
• Retail vacancy rates are forecast to decline to an average of 7.8% by the end of the year, from 8% in the fourth quarter of 2005. Investment in retail space increased 16% to $46.4 billion in 2005.
• The multifamily housing market is tightening, and vacancy rates are forecasted to drop to an average of 4.5% this year, from 5.2% in 2005. Average rent is projected to increase 5.3% in 2006.
Conversion of apartments into condos accounted for 34% of the multifamily properties that traded hands in 2005. NAR officials expect condo conversion to slow down this year, coinciding with an increased demand for rental housing. Total investment in multifamily property rose 72% in 2005 to $86.9 billion, with $29.4 billion spent by condo converters who took 191,400 units out of the active rental market;
• Hotel occupancies should reach 68.7% by the end of 2006, up from 64.5% in the last quarter of 2005. Revenue per available room is likely to grow to $76.01 this year, an increase of 6.3%. Finally, an additional 31,500 hotel rooms are projected to be added to the inventory in 52 markets tracked this year.
- Sean Roth