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Commercial Real Estate To Make Solid Gains In 2006
from: Rick HendershotIn its most recent report released Jan 24, The National
Association of Realtors anticipates "solid" gains in the US
commercial real estate sector.
David Lereah, NAR's chief economist said "Even with a lot of new
construction around the country, we are seeing healthy levels of
commercial real estate space being purchased, rented and
occupied.
As a result, vacancies are declining across the board - this is
improving the fundamentals for commercial real estate sectors
into the foreseeable future."
The report also sees rising concerns at the Fed that commercial
real estate is being concentrated in some banks. According to
Federal Reserve Governor, Susan Bies, The Fed is considering
issuing "supervisory guidance" on risk-management to avoid
commercial real estate exposure that was typical of previous
economic downturns.
According to NAR's latest forecast vacancy rates are generally
declining across most of the 57 metropolitan areas examined.
This means rents are stabilizing in all four commercial market
sectors: office, retail, industrial and multifamily housing.
Employment increases in all sectors is what is driving the lower
vacancy rates. According to the NAR, these rates are expected to
fall to 14.1 percent by the fourth quarter of 2005 and to 12.2
percent in 2006. This is down from 15.4 percent in 2004. They
project that office space rent will grow 4.4 percent for 2005
and 4.9 percent next year That is up significantly from 2004
when the increase was just 0.4 percent.
Their analysis of specific metro areas for investment singles
out New York, Los Angeles, Washington, San Francisco and Chicago
as good targets for commercial real estate investment.
In the industrial sector vacancies are projected to go down to
8.8 percent by the end of 2006 compared to 10.9 percent last
year. Industrial rents, actually declined slightly in 2005, but
are projected to increase 2.5 percent in 2006.
Retail space vacancy is predicted to hit 6.8 percent in the
fourth quarter of 2005, down from 7.5 percent the previous year.
Rents are expected to rise 3.2 percent in 2006 after a similar
increase in 2005. Increases in 2004 were 3.3 percent.
**Some Local Commercial Real Estate hi-lites**
The St. Louis region had an all-time high of $1.2 billion in
commercial real estate transactions in 2005. Local real estate
experts predict it will be even higher in 2006 - perhaps as high
as $1.4 billion.
A Colliers report found that industrial vacancy rates in the
region were at a five-year low, and demand for office and retail
space had fully recovered from the recession a few years ago.
Part of what is driving the real estate boom is that investors
have moved from the stock market to commercial real estate. Many
investors prefer commercial real estate because it is more
transparent and provides a steady cash return as well as a
reliable rate of appreciation.
In the Bradenton, Florida area (Manatee County) commercial real
estate is also going strong. Local experts say commercial
development follows residential, so given the rapid pace of
residential development in most of Florida over the last few
years, there is little likelihood that commercial development is
going to slow down any time soon.
Development here as elsewhere is also dependent on interest
rates, but in Florida the cyclical nature of real estate
development is somewhat mitigated by the unique location and
climate, as well as a shifting demographic pattern.
Lack of convenient parking, and traffic on main downtown
streets, as well as a limited number of downtown development
sites are the biggest challenges facing commercial real estate
developers in this smaller Florida city.
In the Marina Del Rey area of Los Angeles about $1.5 billion in
commercial and residential improvements are underway. The county
is encouraging leaseholders to make improvements to boost
visitors and increase county revenue.
So far two shopping centers have been renovated and the marina's
shops and restaurants, called Fisherman's Village, will be
completely renovated.
Approximately 1,600 apartments are being added, at the same time
as reducing the number of boat slips at the 40-year-old marina.
About the author:
Rick Hendershot does
Mortgage and Loan
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