Commercial real estate in weak recovery, Realtors say
Modest growth in the occupancy of commercial buildings such as offices, warehouses, shopping centers and apartments was predicted by the National Assn. of Realtors.
The trade group said the country’s commercial real estate vacancy rates were generally flat and moderated its earlier projections for improvement because economic growth and job creation have been weaker that expected.
"Disappointing economic growth in recent months means a slower recovery for most of the commercial real estate sectors, although multifamily housing continues to benefit from pent-up demand resulting from an abnormal slowdown in household formation in recent years,” said Lawrence Yun, the association’s chief economist.
“Many young people, who normally would have struck out on their own from 2008 to 2010, had been doubling up with roommates or moving back into their parents’ homes,” he said. “However, they’ve been entering the rental market as new households in stronger numbers this year. As a result, apartment vacancy rates are declining and rents are rising at faster rates.”
Looking at commercial vacancy rates from the third quarter of this year to the third quarter of 2012, Yun forecast vacancies would decline 0.3% in the office sector, 0.6% in industrial real estate, 0.7% in the retail sector and 0.9% in the multifamily rental market.
The outlook for Southern California is similar and there will not be a strong recovery in any sector of commercial real estate in the near term, said Eric Sussman of the Ziman Center for Real Estate at UCLA.
“Although I do not expect a to see a ‘double dip,’ given the overall uncertainty in the markets I also don’t expect to see a rebound or any growth in the commercial real estate markets until 2012 or 2013, when we will see a drop in vacancies and an increase in rents,” Sussman said.
“Because the Southern California industrial and office markets fell further earlier relative to the rest of the country, it is expected that this area would not see continued declining conditions. However, I do not believe that this is a sign of an emerging recovery in this region.
“I continue to believe that the multifamily market, which is continuing to show improvements, will be strong for generations to come. As uncertainty in job markets and volatility in economic markets continue, people will avoid buying homes,” Sussman said. “The changing labor market, which now must be more nimble and mobile, also means that people are less willing to tie themselves down to a home purchase. This trend will last for decades, and may be permanent.”
-- Roger Vincent
Photo: Cerritos Towne Center offices under construction in 2009. Credit: Don Bartletti / Los Angeles Times