4th Quarter Fed Survey Reports Bank Credit Standards On Real Estate Remain Unchanged
 WASHINGTON, DC – The The Federal Reserve Board's November 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. The survey was based on responses from 51 domestic and 22 U.S. branches and agencies of foreign.
Regarding lending standards, fewer domestic banks eased standards and terms on commercial and industrial (C&I) loans over the third quarter compared with recent quarters, particularly on loans to large and middle-market firms. About one-fourth of foreign respondents, which primarily lend to businesses, reported that they had tightened lending standards on C&I loans. All of the domestic and foreign respondents that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook as a reason for the tightening. In response to a special question, a large number of both domestic and foreign respondents indicated that they had tightened standards on loans to European banks and their affiliates or subsidiaries. Standards for commercial and residential real estate loans changed little over the past three months, and a small net fraction of banks indicated that they had eased standards on several types of consumer loans.
According to the survey, changes in loan demand were mixed. A moderate net fraction of banks reported weaker demand for C&I loans, in contrast to the increased demand reported in the previous three surveys; however, some large domestic banks continued to report stronger demand.4 Several large banks also reported increased demand for commercial real estate (CRE) loans. On the household side, demand for loans to purchase homes reportedly increased, though those reports may reflect the moderate rise in refinancing activity. Demand for home equity loans decreased, and demand for consumer loans reportedly was little changed.
Commercial Real Estate Lending
Domestic banks continued to report little change in their standards on CRE loans, which were widely described in a special question in the previous survey as being at or near their tightest levels since 2005. In contrast, a large fraction of foreign respondents reported having tightened standards on CRE loans, in a substantial shift from the net easing reported by those institutions in the prior two surveys. Modest fractions of domestic and foreign banks reported a strengthening of demand for CRE loans, on net, although these reports were a bit less widespread than in the two previous surveys.
Residential Lending
Reports of strengthened demand for mortgage loans to purchase homes outnumbered reports of weaker demand for the first time since early 2010, perhaps reflecting refinancing activity. The number of banks reporting weaker demand for home equity lines of credit increased in the third quarter, particularly among smaller banks.
Few banks reported changes in standards on prime or nontraditional closed-end residential real estate loans, in line with the past several surveys. Similarly, very few banks reported any change in standards for home equity lines of credit, also in line with recent surveys.
Manhattan Office Leasing on Pace to Be Highest Total in a Decade
 NEW YORK, NY - Cushman & Wakefield recently released third quarter statistics for the Manhattan commercial real estate market that show new leasing activity, an indicator of market demand for available office space, reflected the strongest third quarter since 1998. New leasing activity accounted for 6.4 million square feet during the period.
A total of 24.1 million square feet of new leases were signed in the first nine months of 2011, with September marking the 12 consecutive month of leasing activity exceeding 2.0 million square feet in Manhattan. Year-over-year, leasing activity is up 28 percent from the 18.8 million square feet signed in the first nine months of 2010.
With a total of 393 million square feet, the Manhattan commercial real estate market is the largest Central Business District in the nation. Based on the space tracked by Cushman & Wakefield, Manhattan accounts for more than 25 percent of all the CBD office space in the nation.
Strong leasing activity continues to lower the overall average vacancy rate for Manhattan to 9.3 percent as of the end of the third quarter 2011, a decrease of 0.1 percentage points from midyear, 0.7 percentage points since the first quarter and demonstrated the lowest vacancy rate since February 2009. Year-over-year, the overall vacancy rate declined 1.5 percentage points from 10.9 percent at this time last year. The vacancy rate for class-A office space stayed flat from midyear at 10.0 percent, but decreased from 11.6 percent in 2010. The vacancy rates in both class-B and C buildings also decreased compared to the third quarter of 2010. The class-B vacancy is 8.4 percent and class-C is 8.6 percent compared to 9.8 percent and 10.1 percent at this time a year ago.
Overall average asking rents in Manhattan registered $56.15 per square foot at the end of the third quarter of 2011, up $2.35 per-square-foot or 4.4 percent from $53.80 per square foot a year ago. Asking rents have increased an average of $0.20 per-square-foot each month this year. The average asking rent for class-A space also rose, registering $64.68 per-square-foot at the end of the third quarter, up $3.99 per-square-foot or 6.6 percent from the third quarter of 2010.
"Through the third quarter, Manhattan commercial real estate fundamentals have strengthened, following the record pace of new leasing activity," said Joseph R. Harbert, Cushman & Wakefield's Chief Operating Officer for the New York Metro Region. "It is clear we have been in a hot leasing market."
Vacant space in Manhattan as of the end of September 2011 totaled 36.7 million square feet, a decrease of more than 6 million square feet from the third quarter of 2010. Sublease space, which accounts for only 15.2 percent of all available space in Manhattan, is down from 18.1 percent a year ago at this time, but slightly up during the quarter.
Net absorption, which is a measure of the net change in occupied space over a given period of time, was positive 3.6 million square feet, up from 3.2 million square feet at midyear.
The Manhattan commercial real estate market has three of the four tightest Central Business Districts in the nation. The Midtown South submarket at 6.1 percent has the lowest vacancy rate (a decrease of 1.0 percentage point from 7.1 percent at midyear 2011). Midtown South asking rents increased $0.40 per-square-foot year-over-year to $44.65 per-square-foot from $44.25 per-square-foot. The class-A asking rent increased a very substantial $10.12 per-square-foot year-over-year to $56.95 per-square-foot from $46.83 per-square-foot.
The Midtown class-A vacancy rate, which peaked at 13.9 percent in the first quarter of 2010 and decreased to 10.5 percent in the second quarter of 2011, is up slightly at 10.6 percent. Asking rent in the Midtown market increased $2.38 year-over year and $0.72 from midyear 2011. The class-A asking rent increased $3.51 year-over-year to $69.75 from $66.24.
The Downtown market, which has had very strong leasing activity in 2011, saw asking rents decrease slightly from $39.38 per-square-foot at the midyear point of 2011 to $39.10 per-square-foot by the third quarter. The class-A asking rent also decreased, dropping $1.10 per-square-foot from $44.29 per-square-foot at midyear to $43.19 per-square-foot in the third quarter. This decrease is attributed to the leasing of high-quality, above market priced space, not deterioration in asking rents.
"While this has been a strong year, New York, however, does face headwinds with the financial industry coming under pressure, but it appears to be well positioned to weather these challenges," said Ken McCarthy, senior economist and senior managing director at Cushman & Wakefield.
The top five leases of the quarter included a 271,247-square-foot lease to Pearson Plc at 330 Hudson Street, a 267,647-square-foot lease to Oppenheimer & Co. at 85 Broad Street, a 152,000-square-foot lease to Open Society Foundations at 1770 Broadway, a 125,811-square-foot lease to MSCI Inc. at Seven World Trade Center and a 112,941-square-foot renewal at 555 West 57th Street to Continuum Health Partners. Cushman & Wakefield was involved in three of the top five leases completed in the third quarter.
By industry, financial services accounted for 32.4 percent of all leasing year-to-date, followed by information/media at 27.5 percent and government, education and social services at 9.5 percent. This compares to the third quarter of 2010, when financial services accounted for 25.5 percent, followed by legal services at 11.2 percent and government, education and social services at 9.7 percent.
Investment Sales
The volume of property sales closed in Manhattan has reached nearly the same total as 2008. On an annualized basis, 2011 is expected to be the third highest total on record, exceeded only by 2006 and 2007. By the close of the third quarter of 2011, $19.4 billion in sales were completed, with $3.8 billion currently under contract, compared to $8.1 billion closed by the end of the third quarter of 2010. This represents an increase of 140 percent.
In the third quarter of 2011, a total of $6.3 billion in sales were recorded on top of a midyear total of $13.1 billion. The highest volume on record in Manhattan occurred in 2007, when total yearly sales hit $47.8 billion.
To date, class-A office product has accounted for $6.3 billion or 32 percent of the total property sales through the third quarter, followed by hotel property at $3.0 billion or 16 percent and multifamily property at $2.9 billion or 15 percent.
Institutional investors continued to lead in total acquisitions, accounting for 36 percent of this year's total sales, followed by private capital at 27 percent, real estate investment trusts (REITs) at 26 percent, up from 23 percent at the midyear point, and foreign investors at 9 percent.
"The volume has been strong in Manhattan," said Mr. Harbert. "The continued activity suggests that demand for stable, high-quality, well located assets make New York City a primary investment market. The perception of relative safety and preservation of capital and liquidity continue to drive investment decisions."
Recapitalizations have been a significant driver in the market. One notable transaction in the third quarter was Paramount Group Inc.'s recapitalization on 1633 Broadway, a 2.5 million-square-foot class-A office tower. The international real estate investment and management firm recapitalized a 49 percent interest in the property. Cushman & Wakefield Sonnenblick Goldman arranged the transaction.
Retail
Through the third quarter of 2011, the Manhattan retail market continued to perform exceptionally well. This is especially true in the primary corridors. The average ground floor asking rents increased or was flat in all but one submarket, with no large increases in availability rates.
The availability rate in SoHo, which stretches from West Houston to Grand Streets and West Broadway to Broadway, continued to decline to 4.2 percent, down 1.7 percentage points from the end of the second quarter of 2011. The average asking rent increased $33 per-square-foot to $301 per-square-foot, while premier streets like Broadway, Spring Street and Prince Street averaged almost $527 per square foot.
The most notable deals in SoHo completed in the third quarter were Tiffany & Co. at 97 Greene Street for 10,500 square feet and Lacoste at 541 Broadway for 4,800 square feet.
Only five units remain available for direct lease in the Upper Fifth Ave. market, from the north side of 49th Street to 60th Street. These spaces have an average ground floor asking rent above $2,075 per-square-foot.
The Lower Fifth Ave. market, from 42nd Street to the south side of 49th Street, continued to see increased demand.
Availability in the Times Square corridor remained slim in the third quarter. The average asking rent for ground floor space increased 5.5 percentage points to $842 per-square-foot even as leasing activity slowed.
In the Madison Ave. submarket, which stretches from 56th Street to 72nd Street, availability increased to 12.2 percent, the highest availability in the City. However, asking rents in Madison Ave. increased 3.1 percent since March 2011, to $863 per-square-foot by the end of the third quarter.
The Third Ave. and Upper West Side submarkets showed strong fundamentals, with flat asking rents from last quarter and relatively strong leasing activity.
The Downtown market had several notable deals, including an expansion for Century 21 and the opening of a 23,000-square-foot 24-hour Duane Reade. Moreover, the strength of the submarket is demonstrated by the plans to renovate the Winter Garden, and the 550,000-square-foot, multi-level retail component at the World Trade Center.
Jones Lang LaSalle 3Q 11 Capital Markets Outlook: Prime Assets Reign Supreme
"Summer of Discontent" weighs upon secondary marketplace as investors return to core
 LOS ANGELES, CA - Prime assets continue to draw significant interest in the form of debt and equity capital, despite turbulence in the global financial markets and worries surrounding the Eurozone debt crisis—all of which has contributed to the "Summer of Discontent" affecting the commercial real estate sector in the third quarter of 2011.
Jones Lang LaSalle's 3Q Capital Markets Outlook, recently released at the Urban Land Institute's Fall Conference in Los Angeles, shows investors are beginning to pull back from further expansion on the risk continuum and secondary, tertiary and Class B assets may have to wait for further consideration until 2012.
"Moving towards the mid-part of 2011, we began to see investors shift their focus from the core, well located primary assets, where cap rates had dropped to the low 5s and 4s in the best markets, toward more secondary markets or assets with more fundamental risk," said Jay Koster, Jones Lang LaSalle's Americas Capital Markets President. "However, given the recent worldwide market volatility, investors overall desire for risk has become muted and they remain very price-sensitive for any additional market or fundamental risk they are undertaking outside of those prime markets."
The preliminary estimate for total U.S. office volume during the third quarter is approximately $15.6 billion, representing a slight five percent increase over second quarter activity. On a year-over-year basis, transaction activity still grew at a very strong pace at 55 percent. This pace of year-on-year growth has slowed substantially from the triple-digit gains that were experienced in most of 2010 and early 2011 and is expected to slow even further in the fourth quarter as economic concerns linger.
Cap rates in the office sector expanded modestly in the third quarter, increasing 30 basis points to 6.4 percent. Despite this increase, average initial yields are still 250 basis points lower than those seen in the market trough of 2009. "As investors flocked towards the safety of U.S. Treasuries in the third quarter, yields on a 10-year note fell to their lowest levels in more than 60 years," added Koster. "That made nearly every sector of real estate even more attractive to a wide array of investors—and may, in fact, push demand for the highest quality assets even higher in the near-term."
In addition to the demand in the office sector, U.S. multifamily assets continue to draw very strong interest from a broad cross-section of investors. The sector's market fundamentals and relatively superior availability of debt financing as compared with other product types kept multifamily volume relatively stable in the third quarter at more than $12 billion. For the year-to-date, U.S. multifamily volume is an estimated $33 billion, up nearly 70 percent from the same period in 2010.
Commercial Real Estate Lending Markets
The debt markets were also impacted by the combination of the surge in financial market volatility over the summer as well as the reduced U.S. economic expectations. While the short-term policy interest rate remains in a range of zero to 0.25%, and the Federal Reserve indicated during the third quarter that it would maintain the policy rate at its current exceptionally low level until 2013, both investor demand as well as loan product available for Commercial Mortgage-Backed Securities (CMBS), has been tempered over the last two months.
The end of 2010 and the beginning of 2011 saw a strong resurgence in the CMBS market—with CMBS lenders placing loans in earnest in the first half of this year. Conduit lenders have issued nearly $10 billion in loans in the third quarter, pushing the total issuance to date to approximately $27 billion—more than double the total bond issuance in all of 2010. However, over the second and third quarter, CMBS spreads began to widen, becoming increasingly choppy in the heat of June and July. As a result, CMBS issuance will likely decline over the next few months, with total issuance settling in at about $30-33 billion, compared with projections of $45-50 billion earlier this year.
"The volatility we saw in the pricing for CMBS issuance in late July and early August created a great deal of inefficiencies in the system and resulted in buyer uncertainty relative to the sizing and pricing for underlying debt . This slowdown in the CMBS market will have the greatest impact on the secondary markets and Class B product as their financing alternatives have been reduced," said Mike Melody, Executive Managing Director and Co-Head of Jones Lang LaSalle's Real Estate Investment Banking team. "While the CMBS players are pulling back, life companies are still investing in commercial real estate and should have as much, if not greater, allocations to the sector in 2012."
Life insurance companies originated the greatest percentage of office loan volume in the first half of 2011, at 29 percent. Now that they're nearing their planned allocations, this lender group may move at a more selective and deliberate pace in the final months of 2011. Other major national balance sheet lender groups have also pulled back a bit in the wake of market turmoil, but only modestly—and have kept up allocations to well-located and occupied Class A/core assets.
"We've recently seen a number of high-quality assets with upcoming maturities be extremely successful in securing financing—notably the Trammell Crow Center $93 million refinancing and the $205 million refinancing for The Crescent, both in Dallas and financed through life companies," said Tom Fish, Executive Managing Director and Co-Head of Jones Lang LaSalle's Real Estate Investment Banking team. "Strength of sponsor, tenancy, length of lease terms and location will continue to play a more crucial part in a lender's ability to competitively quote deals and subsequently securitize in the marketplace. We expect it to take until at least the middle of 2012 before those secondary markets and Class B properties start receiving more significant attention from lenders, as prime assets still reign supreme."
Domestic banks and opportunity funds are shifting their attention to find yields gained in the loan sale market as the way to move product, versus the foreclosure real estate owned (REO) route. Product is now moving through note sales, as the prices these institutions are able to clear matches what they would be able to achieve if they were to foreclose, take ownership and sell as owned assets in the marketplace. The latest multi-billion opportunities in the note sale sector are drawing bank and opportunity fund attention to the capitalized note sale buyers. Banks have learned they can purchase sub- and performing loans, clear the product through active buyers and open their balance sheets for new loans. This is a major trend to clear bank exposure that's expected to continue in 2012, and well into the "maturity wall" the industry still faces through 2016.
Third Quarter Commercial/Multifamily Mortgage Originations Up 98 Percent from Last Year, 10 Percent from Last Quarter
 WASHINGTON, DC - Third quarter 2011 commercial and multifamily mortgage loan originations were 98 percent higher than during the same period last year and 10 percent higher than the second quarter of 2011, according to the Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
"Lending on commercial and multifamily properties continues," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "Mortgage originations by life company portfolios hit another new record in the third quarter, and lending by bank portfolios and Fannie Mae and Freddie Mac also picked-up. Mortgage originations for the CMBS market, which was caught up in the global economic uncertainty of recent months, declined from last quarter, but were higher than last year's Q3 level."
Third Quarter 2011 Originations 98 Percent Higher Than Third Quarter 2010
The 98 percent overall increase in commercial/multifamily lending activity during the third quarter of 2011 was driven by increases in originations in most property types. When compared to the third quarter of 2010, the increase included a 406 percent increase in loans for hotel properties, a 164 percent increase in loans for retail properties, a 103 percent increase in loans for office properties, a 39 percent increase in loans for multifamily properties, a 3 percent decrease in industrial property loans and an 8 percent decrease in health care property loans.
Among investor types, loans for commercial bank portfolios increased by 433 percent compared to last year's third quarter. There was also a 169 percent increase in loans for conduits for CMBS, a 61 percent increase in loans for life insurance companies and a 47 percent increase in loans for Government Sponsored Enterprises (or GSEs – Fannie Mae and Freddie Mac).
Third Quarter 2011 Originations 10 Percent Higher Than Second Quarter 2011
Third quarter 2011 commercial and multifamily mortgage originations were 10 percent higher than originations in the second quarter of 2011. Compared to the second quarter, third quarter originations for retail properties saw a 37 percent increase. There was an 8 percent increase for office properties, a 4 percent increase for hotel properties, a 2 percent decrease for multifamily properties, a 14 percent decrease for industrial properties and a 30 percent decrease for health care properties.
Among investor types, between the second and third quarters of 2011, loans for commercial bank portfolios saw an increase in loan volume of 55 percent, loans for GSEs saw an increase in loan volume of 32 percent, originations for life insurance companies increased 3 percent and loans for conduits for CMBS decreased by 48 percent.
Colliers' Global Investor Sentiment Survey Reveals Commercial Property Investors Want To Buy, But Wary
Colliers International survey reveals buyers are "most likely" to expand their portfolios in next six months, but lack of supply, financing, and economic and political uncertainty make them reluctant
 SEATTLE, WA – More than eight of ten U.S. real estate investors are planning to expand their real estate portfolio in the next six months, according to the recently released 2011 Colliers International Global Investor Sentiment Survey. The survey takes the pulse of property investors worldwide, measuring their appetite for risk, optimism, key concerns and sense of market cycles. The expansionist mentality in the U.S. was echoed around the globe.
"Far more investors are looking at expanding their portfolios compared to last year," said James W. Horne, executive sponsor of Colliers' Global Investor Sentiment Survey. "However, talk of a double-dip recession continues to occur. Toward the end of 2010, most economic commentary was becoming more confident; however, this is not the case now."
The majority of U.S. investors responding to the survey opined that the market cycle was on the upswing, between the 6 o'clock and 8 o'clock position. The bottom of the market is represented by the 6 o'clock position, the peak at 12 o'clock, upswing at 9 o'clock and downswing at 3 o'clock. Most investors said that over the next year, the market would be between 8 o'clock and 10 o'clock.
The overwhelming determinant of whether U.S. investors would be able to grow their portfolios was the supply of properties for sale, with 62 percent citing it as their primary concern. Raising new equity and access to debt were the second and third most cited determinant at 20 and 11 percent, respectively. Despite these concerns, 60 percent of U.S. investors said they are willing to take on more risk.
"Most U.S. investors say they are moving further out on the risk curve relative to six months ago," said Warren Dahlstrom, president of Colliers International's U.S. Investment Services Group. "This most likely reflects the dearth of low-risk, fully leased prime real estate currently on the market, and investors being forced into secondary markets and accepting a degree of vacancy."
According to the survey, U.S. investors' expectations for return on investment were spilt evenly across the board. About one-third of respondents sought returns in the five to 10 percent range, one-third was looking for returns above 15 percent and just less than a third (32 percent) were in the middle, seeking returns of 10 to 15 percent.
While U.S. investors did not specify a single city, state or region as the target of their investment dollars, many remained focused on primary markets in California, Texas, New York/New Jersey, Washington and Boston. Industrial and multifamily were the market segments respondents said were most desirable, followed by office and retail. Most U.S. investors also expressed a desire to purchase domestic property, but there was an increase in the percentage of respondents who said they were willing to invest overseas. Of those, Canada, Australia and Brazil were top choices.
On a global basis, the majority of investors surveyed believe tenant demand is rising, availability and vacancy are falling, and headline rents are on the rise. This outlook suggests they have the confidence to make buying and selling decisions—a confidence absent in 2008 and 2009, when investment sales dwindled to a fraction of their usual volume.
In the first half of 2011, about 9,250 investment properties worth US$350 billion changed hands, an increase of 30% in volume over the same period in 2010. The US was the most significant driver of this global figure, with a 124% increase in its investment transaction volume.
Investors globally suggest they're willing to move off the sidelines and back into the buying pool, with 70.7% of investors "most likely" and 15.9% of investors "somewhat likely" to expand their portfolios in the next six months. In the 2010 survey, only 60% of investors said they planned to expand their portfolio in the coming year.
Despite a willingness to buy, a common complaint among investors was the lack of property for sale—nearly half of investors said this was an impediment to their expansion plans. Additionally, 70% of investors said the prices of commercial real estate assets have risen too swiftly.
On a regional basis, key concerns included:
- Asia, Latin America and Australia/New Zealand: Global economic health
- US:Local economic health
- Europe:Government policy
Colliers International's proprietary Global Investor Sentiment Survey integrates the opinions of 360 major institutional and private investors representing seven world regions (Asia, Australia/New Zealand, Canada, Europe, Latin America, Middle East/Africa, and the United States).
Global highlights from the report:
- What are the barriers to expansion? In the Middle East and Africa, political risk is a key factor. In Asia, economic uncertainty is seen as the greatest risk. In Australia, the key concern is equity.
- Which investors have the greatest appetite for risk? 64% of Canadian investors and 60% of US investors said they are more aggressive than six months ago, a stronger shift in risk tolerance than any other region.
- Most investors are interested in buying within their own region. The investors most interested in purchasing outside their own region were from Canada and Asia.
- Investors in Asia, Australia/New Zealand and Latin America see increased demand for suburban office space, while investors in other regions see a trend toward recentralization, resulting in lower demand for suburban office space.
- Latin American investors were most pessimistic, believing they are at the peak of the market. However, they also noted that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.
NAR Says Growth in Commercial Real Estate Markets Expected in 2012
 WASHINGTON, DC – Commercial real estate markets have been relatively flat this year, but improving fundamentals mean a more positive trend is expected in 2012, according to the National Association of Realtors®.
Lawrence Yun, NAR chief economist, said there is little change in most of the commercial market sectors. "Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant's market," he said. "However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year."
The commercial real estate market is expected to follow the general economy. "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," Yun said.
Looking at commercial vacancy rates from the fourth quarter of this year to the fourth quarter of 2012, NAR forecasts vacancies to decline 0.6 percentage point in the office sector, 0.4 point in industrial real estate, 0.8 point in the retail sector and 0.7 percentage point in the multifamily rental market.
The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of 231 local market experts, shows the broad industrial and office markets were relatively flat in the third quarter, in step with macroeconomic trends. The national economy continues to affect the sectors, with 92 percent of respondents reporting the economy is having a negative impact on their local market.
Even so, the SIOR index, measuring the impact of 10 variables, rose 0.6 percentage point to 55.5 in the third quarter, following a decline of 2.6 percentage points in the second quarter. In a split from the recent past, the industrial sector advanced while the office sector declined.
The SIOR index is notably below the level of 100 that represents a balanced marketplace, but had seen six consecutive quarterly improvements before the last two quarters. The last time the index reached the 100 level was in the third quarter of 2007.
Construction activity remains low, with 96 percent of respondents indicating that it is lower than normal; 88 percent said it is a buyers' market in terms of development acquisitions. Prices are below construction costs in 83 percent of markets.
NAR's latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets.
Office Markets
Vacancy rates in the office sector are expected to fall from 16.7 percent in the current quarter to 16.1 percent in the fourth quarter of 2012.
The markets with the lowest office vacancy rates presently are Washington, DC, with a vacancy rate of 9.3 percent; New York City, at 10.3 percent; and New Orleans, 12.8 percent.
After rising 1.4 percent in 2011, office rents are forecast to increase another 1.7 percent next year. Net absorption of office space in the US, which includes the leasing of new space coming on the market as well as space in existing properties, is projected to be 20.2 million square feet this year and 31.7 million in 2012.
Industrial Markets
Industrial vacancy rates are projected to decline from 12.3 percent in the fourth quarter of this year to 11.7 percent in the fourth quarter of 2012.
The areas with the lowest industrial vacancy rates currently are Los Angeles, with a vacancy rate of 5.2 percent; Orange County, CA, 5.7 percent; and Miami at 8.4 percent.
Annual industrial rent should decline 0.5 percent this year before rising 1.8 percent in 2012. Net absorption of industrial space nationally should be 62.0 million square feet this year and 41.2 million in 2012.
Retail Markets
Retail vacancy rates are likely to decline from 12.6 percent in the current quarter to 11.8 percent in the fourth quarter of 2012.
Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Long Island, N.Y., and Northern New Jersey, each at 5.7 percent; and San Jose, CA, at 6.0 percent.
Average retail rent is seen to decline 0.2 percent this year, and then rise 0.7 percent in 2012. Net absorption of retail space is seen at 1.2 million square feet this year and 13.5 million in 2012.
Multifamily Markets
The apartment rental market – multifamily housing – is expected to see vacancy rates drop from 5.0 percent in the fourth quarter to 4.3 percent in the fourth quarter of 2012; multifamily vacancy rates below 5 percent generally are considered a landlord's market with demand justifying higher rents.
Areas with the lowest multifamily vacancy rates currently are Minneapolis, 2.4 percent; New York City, 2.7 percent; and Portland, OR, at 2.8 percent.
Average apartment rent is projected to rise 2.5 percent this year and another 3.5 percent in 2012. Multifamily net absorption is likely to be 238,400 units this year and 126,600 in 2012.
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