Realtors association expects improved commercial real estate demand

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Despite a slowdown in commercial real estate markets during the fourth quarter of 2001, a favorable economic backdrop will consistently increase de-mand for commercial real estate space throughout the year and lead to positive market performance in 2003, according to the National Association of Realtors' fourth-quarter 2001 Commercial Real Estate Quarterly.|ret||ret||tab|

NAR President Martin Edwards Jr., a commercial broker, said the overall increase in business and consumer de-mand is a big plus.|ret||ret||tab|

"Consumers set aside the uncertainty they felt immediately after the Sept. 11 attacks," he said. "Housing finished its best year ever, retail sales grew at a phenomenal rate and the economy showed unexpected gains in the fourth quarter. Businesses responded with renewed confidence by increasing their spending plans."|ret||ret||tab|

Edwards said commercial real estate markets typically lag the overall economy by six months to a year. |ret||ret||tab|

"It should come as no surprise that demand for commercial space slowed in the fourth quarter, translating into a negative absorption rate for all of the commercial market sectors. The result is a near-record increase in vacancy rates, with the office sector showing the sharp-est rise," Edwards said. |ret||ret||tab|

"The good news is recent economic data continue to exceed expectations, resulting in an improved commercial real estate market outlook for this year and even more so for 2003, with retail and multifamily sectors expected to lead the upturn next year."|ret||ret||tab|

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Office market|ret||ret||tab|

For the office market, NAR reported lackluster performance due to faltering employment levels as a result of restructuring. |ret||ret||tab|

In the 54 metro markets tracked, this translated into a negative net absorption of 33.7 million square feet in the fourth quarter. |ret||ret||tab|

With brisk construction of new office projects coming on the market, the va-cancy rate rose to 14.1 percent in the fourth quarter, the highest since the second quarter of 1995. |ret||ret||tab|

Office rent declined 6.6 percent from the fourth quarter of 2000 as many tenants continued to negotiate discounts and incentives. Construction slowed to 23.9 million square feet during the quarter, down from 66.2 million square feet a year earlier.|ret||ret||tab|

NAR projects net absorption of office space to turn positive this year, rising from a negative 12.6 million square feet in the first quarter to a positive 17 million square feet in the fourth quarter. Net absorption is expected to jump to 109.3 million square feet in 2003 from only 15.8 million this year. Construction of new space is forecast at 114.8 million square feet this year and 61.1 million in 2003. |ret||ret||tab|

Slow absorption is expected to push vacancy rates to 15.6 percent this year; higher vacancies will cause rents to drop by 5.5 percent in 2002.|ret||ret||tab|

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Warehouse market|ret||ret||tab|

In the warehouse market, over-capacity in the technology sector and lags in production tempered demand for warehouse space in the fourth quarter. NAR reported net absorption at a negative 2.4 million square feet, the first time it has been negative since tracking began in 1982. |ret||ret||tab|

At the same time, completions of new warehouse space also declined to a total of 34.7 million square feet compared to 39.7 million a year earlier, which raised the vacancy rate to 9.2 percent. |ret||ret||tab|

On average, rents slipped 1.6 percent from a year earlier. Construction starts of new warehouse space dropped to 27 million square feet in the fourth quarter, down 40 percent from the same period in 2000.|ret||ret||tab|

NAR projects the demand for warehouse space will follow a steady upward trend. Net absorption should rise from a negative 6.8 million square feet in the first quarter of 2002 to a positive 11.5 million square feet in the fourth quarter; net absorption should reach 9.2 million square feet for the year as a whole and rise to 109.6 million square feet in 2003.|ret||ret||tab|

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Retail market|ret||ret||tab|

NAR reported that demand for retail space in the 54 metro markets tracked fell to a negative net absorption of 22.6 million square feet in the fourth quarter. At the same time, new space completions totaled 32 million square feet. |ret||ret||tab|

The average retail vacancy rate climbed to 12.1 percent in the fourth quarter, up from 9.1 percent in the same quarter of 2000. |ret||ret||tab|

Rents declined an average 1 percent in the fourth quarter from the same period a year earlier, the largest drop since 1994. Construction starts in retail totaled 38 million square feet in the fourth quarter, the lowest since 1998.|ret||ret||tab|

NAR projects that net absorption in the retail sector will rise from a negative 12 million square feet in the first quarter of this year to 26 million in the fourth quarter. |ret||ret||tab|

Freestanding grocery stores, grocery-anchored shopping centers and stores selling household-related goods will continue to benefit from consumer de-mand. Net absorption is projected to reach 146.6 million square feet in 2003, four times the level projected for this year.|ret||ret||tab|

Delivery of new space is expected to reach 98.3 million square feet in 2002, exceeding demand, so the average vacancy rate in the 54 metro markets tracked is forecast to rise to 13 percent this year.|ret||ret||tab|

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Multifamily market|ret||ret||tab|

In the multifamily sector, the association reported negative net absorption of nearly 2,800 units in the 54 metro markets tracked during the fourth quarter, the first time it has been negative since tracking began in 1982. Absorption for the year totaled 78,400 units, down from 216,900 units in 2000. Completions of new rental units came to 48,100 units in the fourth quarter, down from 52,300 a year earlier. |ret||ret||tab|

With completions continuing to outpace absorption, the vacancy rate rose nine-tenths of percent to 5.9 percent during the fourth quarter. Average rents rose 1.4 percent in 2001. Construction starts of new apartments totaled 60,000 units in the fourth quarter, down 13 percent from the year-ago level.|ret||ret||tab|

NAR projects the apartment rental market will experience a negative net absorption of 11,500 units during the first quarter, and vacancy rates will rise to 6.4 percent. |ret||ret||tab|

Net absorption for 2002 is expected to total 30,500 units, then rise to 148,600 next year. Completions of new space will total 154,100 units this year and 82,900 in 2003. |ret||ret||tab|

This will cause the average vacancy rate to rise to 6.8 percent by the end of this year, while average rent is projected to rise a modest three-tenths of a percent in 2002.[[In-content Ad]]