Commercial real estate stabilizing.

[Nick Gromicko]

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 360 local market experts, shows a firming up of market fundamentals.

The SIOR index, measuring the impact of 10 variables, rose 6.8 percentage points to 57.5 in the first quarter, the highest since the fall of 2008. Although the SIOR indexremains notably lower than a level of 100 that represents a balanced marketplace, this is the sixth consecutive quarterly improvement after almost three years of decline. The last time the index was at 100 was in the third quarter of 2007.

NAR’s (National Association of REALTORs) latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets:

Offices:

Vacancy rates in the office sector are expected to fall from 16.3% in the second quarter of this year to 15.3% in the second quarter of 2012. The markets with the lowest office vacancy rates currently are Honolulu and New York City, each with vacancies below 9%. Office rents are projected to rise 0.3% this year and another 4.3% in 2012. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to be 26.6 million square feet in 2011.

Industrial:

Industrial vacancy rates are expected to decline from 13.9% in the current quarter to 13.0% in the second quarter of 2012. At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies in the 7 to 8% range. Annual industrial rent should decline 1.5% in 2011 before rising 2.0% next year. Net absorption of industrial space in 58 markets tracked is seen at 126.1 million square feet in 2011.

Retail:

Retail vacancy rates are forecast to decline from 13.1% in the second quarter of this year to 12.6% in the second quarter of 2012. Markets with the lowest retail vacancy rates currently include Honolulu; Long Island, N.Y.; and San Jose, Calif., all with vacancies below 8%. Average retail rent is expected to decline 1.4% in 2011, and then rise 0.7% next year. Net absorption of retail space in 53 tracked markets is projected to be 5.4 million square feet in 2011.

Multifamily:

The apartment rental market – multifamily housing – is continuing to tighten as household formation grows. Multifamily vacancy rates should drop from 5.8% in the current quarter to 4.7% in the second quarter of 2012. Areas with the lowest multifamily vacancy rates presently are Pittsburgh; San Jose, Calif.; and Portland, Ore., with vacancies below 3%. Average apartment rent is likely to rise 3.4% this year and another 4.3% in 2012. Multifamily net absorption is forecast at 250,800 units in 59 tracked metro areas in 2011.