Commercial fundamentals continued to strengthen in REALTOR® markets, as rental rates increased and demand for space accelerated during the first quarter. Commercial leasing rose 5.0 percent over the fourth quarter 2013, following a moderate 0.4 percent rise the prior quarter. On the supply side, new construction showed a similar acceleration, gaining 4.0 percent in the first quarter 2014, on the heels of a 2.0 percent increase last quarter.
Vacancies declined for all property types, except multifamily buildings. Office vacancies declined 90 basis points, to 16.7 percent, while industrial availability declined 150 basis points, to 13.1 percent. Multifamily vacancy reached 7.4 percent, an 80 basis point advance. Retail availability declined 190 basis points to 14.2 percent. REALTORS® expect inventory availability to remain flat over the next 12 months.
With decreasing vacancies, landlords were in a stronger position, and provided fewer rent concessions. Rent concessions declined 4.0 percent on a quarterly basis. The national average tenant improvement allowance was $4,878 per lease in the first quarter 2014.
|
2014.Q1 Vacancy Rates |
|
| Office | 16.7% |
| Industrial | 13.1% |
| Retail | 14.2% |
| Multifamily | 7.4% |
| Hotel | 18.6% |
Average rental rates rose 2.0 percent during the first quarter, following a 0.3 gain percent during the fourth quarter 2013. In terms of space requirements, tenant demand in the 5,000 square feet and below category accounted for 75.0 percent of leased properties. At a more granular level, demand for space under 2,500 feet comprised 42.0 percent of lease agreements. Lease terms remained steady, with 36-month and 60-month leases capturing 62.0 percent of the market.
Note: Vacancy rate data in this report comes from a national survey of REALTORS® who identify themselves as commercial practitioners. The data does not match the historical data used to generate NAR’s Commercial Real Estate Outlook, which is sourced from Reis, Inc.
By: George Ratiu, Economist Commentaries
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