Real Estate News | North America Commercial News
U.S. Commercial Markets Not Feeling Effects of Increased Employment Hiring Yet, Mainly Backfilling Shadow Inventory
By Michael Gerrity | April 10, 2012 1:10 PM ET
According to the latest analysis from CBRE Econometric Advisors (CBRE-EA), the US commercial markets posted mixed results in the first quarter of 2012.
CBRE-EA recently shared with World Property Channel the following U.S. commercial market trends;
- The US office vacancy rate remained unchanged in the first quarter (Q1) of 2012 at 16 percent.
- The national industrial availability rate dropped 20 basis points (bps) during Q1 2012 to 13.4%, continuing a pattern of improvement that goes back nearly two years.
- In Q1 2012, the retail availability rate remained flat at 13.1%, according to CBRE-EA.
- Apartment demand continued to accelerate, with the vacancy rate declining to 5.1% in Q1 2012, a 90 bps drop from a year ago and the best improvement since Q1 2010.
"The most important economic news in Q1 2012 was the pick-up in hiring, but so far we have only seen strong improvement in the multi-family sector," said Jon Southard, Managing Director, CBRE-EA. "For property types with longer leases, the employment gains served mostly to fill in "shadow vacancy" -- space that was previously leased but not used. The delay between stronger employment and a pick-up in leasing demand is typical for the early stages of recovery in the office, industrial, and retail sectors."
U.S. Office Market
At 16% in Q1 2012, the national vacancy rate remains well above the pre-recession low of 12.4%. The office market continues to face headwinds from global financial market uncertainty, regulatory and fiscal uncertainty and, in certain local markets, a sluggish housing recovery. These headwinds have been counter-balanced by impressive growth in professional and business service jobs as well as contained new construction pipelines, enabling continued but slow improvement in market fundamentals.
During Q1 2012, suburban submarkets continued to out-perform downtown submarkets. Aggregate vacancy in the suburbs remained unchanged while the national downtown vacancy rate rose by 10 bps. A market-by-market analysis shows that occupancy improved in just under half the markets nationwide. Markets with technology or energy exposure continued to be among the best performers as vacancy rates fell by 70 bps in both Oakland and Seattle, by 60 bps in Houston and by 40 bps in Oklahoma City.
"The job market will need to approach its pre-recession form before more rapid improvement in the office market can take hold," Mr. Southard said. "We continue to anticipate more robust hiring during the second half of 2012, which will move us closer to that goal."
U.S. Industrial Market
The first quarter's decline in availability, to 13.4%, extends a streak of falling availability rates to seven consecutive quarters. During the quarter, 35 markets reported lower availability rates and 25 reported increases. Among larger markets, Seattle was the leader dropping by 100 bps, followed by Edison (NJ) and Fort Worth both down by 80 bps, and Atlanta, Cleveland, and Dallas all down 70 bps. With many markets reporting improvement in their availability rates, economic growth appears to be continuing to lead to increased industrial space demand. Some larger markets did report weakness, however, including, Riverside, Philadelphia, Phoenix, and Kansas City.
U.S. Retail Market
Q1 2012 retail availability was flat compared to the prior quarter at 13.1%. Even though construction completions were at historically low levels in the first quarter, absorption gains were not enough to warrant any movement from year-end availability rates.
A majority of the retail markets recorded either flat or declining availability rates, compared with Q4 2011. Notable performers included Birmingham, Austin, Miami, Kansas City and Indianapolis; each of these markets recorded a decline of over 50 bps. On the other end of the spectrum, markets such as Jacksonville, Washington DC and San Diego recorded gains in availability rates of over 50 bps in the first quarter. However, most markets are still hovering above their early 2011 availability rates.
U.S. Apartment Market
Compared to a year ago, apartment vacancy rates declined in 58 out of 63 markets, with the biggest year-over-year declines in vacancy (150 bps or more) in Birmingham, Dayton, Greenville, Phoenix, Tulsa, Houston, Detroit, Richmond, Salt Lake City, Fort Worth, and Norfolk. Markets with the lowest (4 percent or less) vacancy rates include Newark, Pittsburgh, San Jose, Oakland, Minneapolis, Providence, Salt Lake City, Boston, Hartford, Los Angeles, Edison (NJ), Miami, Portland (OR), Columbus, San Francisco, Ventura, and Detroit. With the continuing gains in occupancy, effective rent growth has momentum, with the national index rising at an annualized rate of about 4.5 percent.