A recent report from the National Association of Realtors predicts that the economic slowdown in 2001 will have a modest effect on the five major commercial real estate sectors: office, warehouse, retail, lodging and multifamily.
In its Commercial Real Estate Quarterly, NAR reported resilience to the slowing economy as the national vacancy rate tightened to 9.7 percent in the third quarter of 2000. Demand for office space rose 4.0 percent from a year earlier, while supply increased by only 2.6 percent.
The association expects slowing economic activity to result in only modest employment gains in 2001, slowing office demand throughout the year. Although retrenching will continue in some sectors of the services industry such as “new economy” companies, other sectors will create new jobs. Office inventory is expected to grow with new construction becoming available, and vacancy rates should edge higher to 10.6 percent this year in comparison with a projected 9.8 percent for all of 2000.
Landlords will be more likely to negotiate leases, causing rent growth to slide. NAR estimates asking rent will be $29.35 per square foot in 2001, compared to $27.87 last year. Based on rent growth, the hottest office markets expected this year are Boston; Newark, N.J.; Austin, Texas; New York City and Hartford.
In the warehouse market, the association projects net absorption to be slower but healthy in 2001, declining to 110 million square feet in comparison with an estimated 130 million square feet in 2000. With an increase in supply, the national vacancy rate should rise from 8.1 percent in 2000 to 8.5 percent this year. Warehouse rents, adjusted for inflation, are projected to rise 2.2 percent in 2001. Based on rent growth, the hottest warehouse markets are expected to be in Phoenix, San Francisco, Boston, Houston, and Oakland, Calif.
