Multifamily Continues to be a Bright Spot in Commercial Real Estate

Washington, D.C.—Multifamily is the only sector of commercial real estate that can expect increased demand in the second half of 2010, according to the National Association of Realtors’ latest “Commercial Real Estate Outlook.”

This is at the same time that vacancy rates continue to rise in most other commercial sectors and are not expected to level out in most markets until the end of this year or early 2011.

“The multifamily sector can expect increased demand as the economy creates jobs and new households are formed, likely in the second half of this year,” says Lawrence Yun, NAR chief economist. “However, the office, warehouse and retail sectors continue to experience the delayed effects of the recession.  These sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011.”

The multi-housing vacancy rates are forecast to decline from 7.3 percent in the first quarter of this year, to 6.3 percent in the first quarter of 2011.

With recent additions to supply, average rent is likely to slip 1.5 percent this year, followed by an increase of 1.2 percent in 2011.  Multifamily net absorption should be 145,700 units in 59 tracked metro areas this year, and another 214,500 in 2011.

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of nearly 700 local market experts, confirms that significant fallout from the recession remains, but to a lesser extent. The SIOR index, measuring 10 variables, increased 2.7 percentage points to 38.2 in the first quarter, compared with a level of 100 that represents a balanced marketplace.  This is the second gain following nearly three years of declines.

Development activity remains at a standstill with nine out of 10 respondents saying that it is virtually nonexistent in their markets.