Commercial real estate is on solid footing, with the National Association of REALTORS®’ (NAR) quarterly commercial forecast projecting continued stability in 2017. National vacancy rates in the office sector are set to decrease to 12.1 percent, while those in the industrial space and retail sectors are set to decrease to 7.1 percent and 11.2 percent, in order. The national vacancy rate in the multifamily sector is set to stand at 6.5 percent.
“Last year was the 11th year in a row of subpar GDP growth, but renewed corporate optimism leading to a focus on investment and a desperately needed boost in residential construction should pave the way for modest expansion this year of around 2.4 percent,” says Lawrence Yun, NAR chief economist. “Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”
The apartment sector, according to the forecast, will continue as a top performer, as ongoing affordability and supply challenges are stalling the homeownership rate.
“Especially in the costliest metro areas, higher home prices and mortgage rates are squeezing the budget for many renters looking to buy and inevitably forcing them to sign a lease for at least another year,” Yun says.
Commercial property prices, especially those in Class A assets in larger markets, surpassed pre-crisis levels in 2016 because of aggressive bidding and lower inventory—but, according to Yun, the market could see a minor price correction as the Federal Reserve moves on the key interest rate throughout the year.
“Similar to the biggest ongoing challenges in the residential market, supply and demand imbalances continue to put upward pressure on commercial property prices as investors search for yield in smaller markets,” says Yun. “REALTORS® are increasingly citing inventory shortages as their top concern as the pace of new projects slows in large cities and middle-tier and smaller markets see a growing appetite for space.
“The positive direction for commercial real estate this year will be guided by the steadily expanding U.S. economy, which has legs to grow and continues to be one of the top economic performers and safest bets in the world,” Yun says.
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