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WASHINGTON – The outlook for all of the major commercial real estate sectors is slightly improving despite disappointing economic growth during the first quarter of 2014, according to the National Association of Realtors® quarterly commercial real estate forecast.
Lawrence Yun, NAR chief economist, said the sluggish growth experienced in the first quarter is not indicative of the actual health of the economy. “Gross Domestic Product should expand closer to 3 percent for the remainder of the year. The improved lending for commercial loans and continuing job gains we’ve seen this spring bode well for modest progress in commercial real estate leases and purchases of properties.”
However, Yun cautions that with rising long-term interest rates on the horizon, consistent economic growth is imperative to solid commercial real estate investment in the years ahead.
National vacancy rates in the office market are forecast to decline 0.2 percentage point over the coming year, while international trade gains continue to boost use for industrial space, which forecasts a decline of 0.3 point. The outlook for personal income and consumer spending is favorable for the retail market, likely leading to a vacancy decline of 0.2 percent.
“The multifamily sector continues to be the top-performer in commercial real estate with the lowest vacancy rates. However, tight availability – despite new construction – is causing rents to currently rise near 4 percent annually in many markets,” said Yun. “Many renters who are getting squeezed may begin to view homeownership as a more favorable, long-term option.”
NAR reported earlier this month in its annual Commercial Member Profile that despite subpar economic expansion, Realtors® who practice commercial real estate saw an increase in sales transaction volume and medium gross annual income in 2013.
NAR’s latest Commercial Real Estate Outlook1 offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS Inc., a source of commercial real estate performance information.
Office Markets
Office vacancy rates should decline from an expected 15.8 percent in the second quarter of this year to 15.6 percent in the second quarter of 2015.
Currently, the markets with the lowest office vacancy rates in the second quarter are New York City and Washington, D.C., at 9.4 percent; Little Rock, Ark., 11.5 percent; San Francisco, 12.6 percent; and New Orleans, at 12.8 percent.
Office rents are projected to increase 2.5 percent in 2014 and 3.2 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 39.7 million square feet this year and 49.8 million in 2015.
Industrial Markets
Industrial vacancy rates are anticipated to fall from 9.0 percent in the second quarter to 8.7 percent in the second quarter of 2015.
The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.5 percent; Los Angeles, 3.9 percent; Miami and Seattle, 6.0 percent, and Palm Beach, Fla., at 6.5 percent.
Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 107.8 million square feet in 2014 and 107.1 million next year.
Retail Markets
Vacancy rates in the retail market are expected to decline from 10.0 percent currently to 9.8 percent in the second quarter of 2015.
Presently, markets with the lowest retail vacancy rates include San Francisco, at 3.2 percent; Fairfield County, Conn., 3.8 percent; and San Jose, Calif., at 4.7 percent. Northern New Jersey; Long Island, N.Y.; and Orange County, Calif., all have a vacancy rate of 5.3 percent.
Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year. Net absorption of retail space is likely to total 11.5 million square feet this year and 19.6 million in 2015.
Multifamily Markets
The apartment rental market – multifamily housing – should see vacancy rates edge up from 4.0 percent in the second quarter to 4.1 percent in the second quarter of 2015, with added supply helping to meet growing demand. Vacancy rates below 5 percent are generally considered a landlord’s market, with demand justifying higher rent.
Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.3 percent; Ventura County, Calif., 2.4 percent; and New York City; San Diego; Hartford, Conn.; Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.
Average apartment rents are projected to rise 4.0 this year and in 2015. Multifamily net absorption is expected to total 221,400 units in 2014 and 173,100 next year.
The Commercial Real Estate Outlook is published by the NAR Research Division. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.
The NAR commercial community includes commercial members; commercial real estate boards; commercial committees, subcommittees and forums; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.
Approximately 70,000 NAR and institute affiliate members specialize in commercial brokerage and related services, and an additional 283,000 members offer commercial real estate services as a secondary business.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
By: Walter Molony and Adam DeSanctis (National Association of REALTORS®)
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Construction is scheduled to begin May 27 on Presbyterian’s massive expansion at its Presbyterian Rust Medical Center in Rio Rancho.
General contractor McCarthy Building Cos. will build an $80 million six-story patient tower with 120 beds and eventually a 21,500-square-foot cancer center at the site, located at 2400 Unser Blvd. SE.
Officials said Friday that the patient tower construction will temporarily reroute the emergency department entrance on the west side of the hospital. Spokeswoman Amanda Schoenberg said patients will access it through the main hospital entrance during construction. It should reopen in March 2015, she said.
The complex sits on 66 acres and employs about 600 people. The expansion is expected to add another 100 jobs.
The architect on the massive project is Dekker/Perich/Sabatini, which worked with McCarthy on the original Presbyterian Rust Medical Center project.
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By: Damon Scott (Albuquerque Business First)
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Rochelle Stone, founding partner of Starker Services, Inc., discusses how 1031 Exchanges help add value for your clients by deferring capital gains taxes and even avoiding needless taxes.
Posted: May 22, 2014   Runtime: 15:20   Size: 14MB   Format: Download
By: Rochelle Stone (National Association of REALTORS)
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Union Pacific Railroad (UP Railroad) has just completed the initial build-out of its $400 million Santa Teresa rail facility, and the size and scope of work done since 2011 is unlike anything else in the state.

Consider that the project has already had an economic impact of hundreds of millions of dollars and has created thousands of temporary construction-related jobs and hundreds of permanent jobs. The project is almost 12 miles long on 2,200 acres, and the amount of dirt moved around would fill the Great Pyramid of Giza in Egypt.

Zoe Gisela Richmond, director of public affairs and corporate relations for UPRR, told Business First this week that the project has put New Mexico on the map as a logistics hub and distribution center. Santa Teresa now joins cities such as El Paso, Chicago, Los Angeles, Dallas, Portland and others that have similar hubs.

And the work wasn’t just a southern New Mexico affair.

“We pulled a lot of resources from the northern part of the state and used Northern New Mexico companies,” Richmond said. One of those is Wilson & Co. Inc. Engineers and Architects, which has been with the project since the beginning. David Olson, an associate vice president in the firm’s Albuquerque office and a decades-experienced structural engineer, said the project has been the biggest of his career. He said seven of the 10 contractors used on the project were based in the state.

“It’s been a very long, hard and exciting project. A landmark project,” he said. Of Wilson’s 450 employees across the U.S., he said about 150 were working on the Santa Teresa project at any given time. The development has massive fueling components, receiving and departure tracks, administrative headquarters and other intermodal facility pieces.

Richmond said now that the initial build-out is complete, New Mexico companies should take note.
“You can draw a 250-mile radius from the facility, and if you’re a business in that circle, you could hire a truck driver and put your product on it to the hub to be shipped to really anywhere in the U.S. That’s a competitive advantage,” she said. Albuquerque is about 250 miles away from Santa Teresa. “Railroads are at the beginning of the economic pipeline,” Richmond said.
The facility was needed, in part, because the UP railroad nearby El Paso hub was reaching capacity. The hubs see products of many kinds, everything from sweaters to iPods. They come to the facility in train cargo boxes and then are put on trucks to end up at Target, Walmart or other retailers. Right now, Richmond said, about 70 percent of products going to the facility are coming from Mexico.

Richmond added that the UP railroad facility built in the Chicago area attracted a Home Depot distribution facility with lots of corresponding jobs. That’s a possibility for Santa Teresa as well, she said.

The facility has already spurred ancillary development, such as a new hotel, 24-hour diner, relocation of a trucking company from El Paso and two new housing developments.

Richmond and Olson said the work has been done in anticipation of future expansion. “We have already seen great success and will be expanding. There is immense room for growth.”

Richmond said New Mexico businesses interested in potentially using the hub or who are new to rail options should start at UP.com and click on the “New to Rail? Learn More” button.

A grand opening that marks the completion of the initial build-out is May 28.
Richmond and Olson spoke about the project at a luncheon hosted by the Society for Marketing Professional Services.
By: Damon Scott (Albuquerque Business First)
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