The U.S. commercial real estate market continued to recover steadily in the first quarter of the year, according to the latest analysis from commercial real estate services and investment firm CBRE Group Inc.
‘Real estate fundamentals continued to improve, despite the harsh winter weather in the initial months of 2014,’ says Jon Southard, managing director of CBRE's econometric advisors group. ‘Sentiment suggests that companies are looking forward to future demand and beginning to respond with expansion plans.’
The quarter marked the first time in a year and a half that the downtown submarkets outperformed the suburbs, as the downtown vacancy rate fell by 10 basis points to 12.2%, and the suburban vacancy rate remained unchanged at 16.3%.
A majority of markets continued to see their vacancy rates fall during the quarter, with rates falling in 34 of the 63 U.S. office markets tracked, rising in 24 and staying unchanged in five.
Consistent with recent quarters, smaller markets were among the best performers. Improvements continue to accelerate in the California, Nevada, Florida and Arizona markets, which were the most affected regions during the housing crisis.
CBRE forecasts the U.S. office market vacancy rate will continue to decline this year, falling to 14.3% by year-end.
The industrial market, with the availability rate now at 11.1%, has seen its recovery continue for 15 consecutive quarters. The 20-basis-point drop was the smallest quarterly decline in six quarters, underscoring the recovery's maturation as many markets are starting to see more significant development.
A majority of markets continued to improve during the quarter, with 40 out of 61 reporting declines in availability, while nine markets remained unchanged and 12 showed increases.
"The first quarter of 2014 showed the demand for industrial real estate has continued, albeit at a slightly slower pace than the past year. But this does not mean conditions in the market are weakening," notes Southard.
CBRE forecasts the national industrial availability rate will decline an additional 30 basis points in 2014 to 10.8%.Â
The quarter's retail availability rate of 11.9% was down 60 basis points compared to the rate one year ago. This is the first time that the availability rate has dipped below 12% since early 2009, although the rate still remains high compared with 7.4% at its low point in Q4'05, prior to the downturn.
CBRE continues to forecast that the availability rate for neighborhood and community shopping centers will decline to 10.6% this year.
Preliminary data indicates that apartment demand continued to expand at a steady pace in the first quarter. The market remains tight by historical standards, with the vacancy rate below the long-term norm. The national apartment demand is now growing at a rate of over 220,000 units or 1.6% on an annual basis – a pace that is stronger than what the market has seen historically.
Vacancy rates declined in 40 of the 63 markets in CBRE's coverage. Effective rent growth has improved slightly but remains in 2.5%-3% per-year range in most areas.
CBRE forecasts that the U.S. multihousing market vacancy rate will average 5.3% in 2014.