By Ian McKendry

WASHINGTON (MNI) – The National Association of Realtors Monday said
growth in most major commercial real estate sectors slowed in the second
quarter, despite positive fundamentals, because of slower job growth and
tight credit conditions.

“Job creation in the second quarter was about half of what we saw
in the first quarter, which is moderating demand in the office sector,”
NAR Chief Economist Lawrence Yun said in an accompanying statement.

“Industrial and warehouse space is holding on better because
imports and exports have advanced,” Yun said, adding that trade with
Asia and South America have been strong while exports to Europe have
slowed.

Yun said while most commercial real estate sectors slowed in the
second quarter, demand for multifamily remains robust and added that as
the household formation rate returns to normal levels vacancy rates for
multifamily housing will be even lower and rents will increase.

Yun added that demand for commercial real estate is being tempered
by tight credit conditions and businesses’ reluctance to make new hires
because of uncertainty surrounding future regulations and taxes.

“Commercial real estate gains could be thwarted if lending from
small and community banks dry up from excessive regulatory compliance
costs, and if international big-bank capital rules are applied to
smaller lending institutions,” Yun warned.

Below is the individual sector outlook from the NAR report:

Office Markets

Vacancy rates in the office sector are expected to fall from an
estimated 16.1 percent in the third quarter to 15.6 percent in the third
quarter of 2013.

The markets with the lowest office vacancy rates presently are
Washington, D.C., with a vacancy rate of 9.4 percent; New York City, at
10.0 percent; and New Orleans, 12.8 percent.

Office rent is projected to increase 2.0 percent this year and 2.6
percent in 2013. Net absorption of office space in the U.S., which
includes the leasing of new space coming on the market as well as space
in existing properties, should be 24.1 million square feet in 2012 and
47.8 million next year.

Industrial Markets

Industrial vacancy rates are forecast to decline from 10.7 percent
in the third quarter of this year to 10.5 percent in the third quarter
of 2013.

The areas with the lowest industrial vacancy rates currently are
Orange County, Calif., with a vacancy rate of 4.6 percent; Los Angeles,
4.8 percent; and Miami at 6.8 percent.

Annual industrial rent is likely to rise 1.7 percent in 2012 and
2.4 percent next year. Net absorption of industrial space nationally is
seen at 59.8 million square feet this year and 67.2 million in 2013.

Retail Markets

Retail vacancy rates are projected to decline from 10.9 percent in
the third quarter to 10.7 percent in the third quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San
Francisco, 3.8 percent; Fairfield County, Conn., 3.9 percent; and Long
Island, N.Y., and Orange County, Calif., both at 5.3 percent.

Average retail rent is forecast to rise 0.8 percent this year and
1.3 percent in 2013. Net absorption of retail space should be 10.3
million square feet this year and 20.1 million in 2013.

Multifamily Markets

The apartment rental market – multifamily housing – is expected to
see vacancy rates drop from 4.3 percent in the third quarter to 4.2
percent in the third quarter of 2013; 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
Portland, Ore., at 2.0 percent; New York City and Minneapolis, both at
2.2 percent; and New Haven, Conn., and San Jose, Calif., both at 2.4
percent.

Average apartment rent is likely to increase 4.1 percent in 2012
and another 4.4 percent next year. Multifamily net absorption should be
219,300 units this year and 236,600 in 2013.”

** MNI Washington Bureau: 202-371-2121 **

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