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August 24, 2016

4 Predictions for the Commercial Market

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4 Predictions for the Commercial Market

Expect a bright year ahead in 2015 for the U.S. commercial real estate market: The National Association of REALTORS® projects rent increases and tighter vacancy rates.

Signs of Resurgence

"Solid economic growth in the third quarter proved that the second quarter wasn't an anomaly, as business spending increased, commercial construction rose, and the labor market continued to make positive strides," says Lawrence Yun, NAR's chief economist. "Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects."

Here are NAR's projections for the commercial market in 2015: 

  • Apartment market: The rental market will likely remain a "landlord's market" in 2015, with vacancy rates expected to stay below 5 percent in the new year. That will likely lead to demand pushing rents up even higher and keeping them above inflation, Yun notes. Apartment rents are projected to increase 4 percent in 2014 and 4.1 percent in 2015.  
  • Office market: Vacancy rates will likely fall from 15.7 percent to 15.6 percent in 2015, with rents expected to rise 2.4 percent this year and another 3.3 percent next year.
  • Industrial market: Vacancies will likely rise from 8 percent to 8.4 percent next year, while annual rents will rise 2.4 percent this year and another 2.9 percent in 2015.  
  • Retail market: Vacancy rates are projected to drop from 9.7 percent this year to 9.5 percent in 2015. Average retail rents likely will rise 2 percent this year and another 2.5 percent next year.  

Source: “Commercial Real Estate Prospects Appear Bright for 2015,” The Wall Street Journal (Nov. 24, 2014)