Commercial fundamentals improved in the fourth quarter 2014, with rising net absorption driving rents higher across the major property types. As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.
Multifamily demand is expected to remain strong, as the pace of household formation closes on historical averages. However, 2015 will mark the first year since the recession that supply will likely outpace demand.
Fundamental improvements were experienced across the country at different rates. In 2014, Lexington, KY provided the largest year-over-year availability decline, with a 100 basis point drop. The second largest declines came from six markets, with varying vacancy rates, which all experienced 90 basis point drops: Albuquerque, NM; Columbia, SC; Dayton, OH; Fort Worth, TX; Las Vegas, NV; and Tulsa, OK.
Of the group, Ft. Worth and Las Vegas are the largest by population, with over 2.0 million people in each metro area. The other markets hover slightly below 1.0 million people. Employment trends were positive for five metros, with Albuquerque being the only one to experience a slight decline in total employment. A contributing factor to the decline may have been an exodus of residents from the metro area. Albuquerque lost 2,940 households between 2013 and 2014. Dayton was the other metro area with a decline in the number of households over the period—890 households.
Las Vegas had the strongest employment growth of the group, at 3.2 percent followed by Ft. Worth, with 2.8 percent growth year-over-year. In contrast to its household change, Dayton’s employment advanced 1.3 percent on a yearly basis. Tulsa experienced a 1.2 percent gain in employment, while Columbia posted 0.4 percent increase in total employment.
Vacancies ranged across the group from about 3.0 percent in Albuquerque to 6.0 percent in Columbia during 2014. Demand was positive across all metros, with net absorption registering growth in three metros—Dayton (85% YoY change), Ft. Worth (17% YoY change) and Tulsa (27% YoY change). Asking rents advanced in all markets, with Ft. Worth posting the highest annual growth rate, at 3.3 percent, followed by Tulsa, with 3.2 percent. Rents rose 2.3 percent in Las Vegas, 2.1 percent in Columbia and Dayton, and 1.7 percent in Albuquerque.
By: George Ratiu (Economists’ Outlook)
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