Economy Watch: CRE in a Goldilocks Zone
- Oct 14, 2015
With the third quarter now finished, commercial property reports focusing on U.S. property markets in 3Q are being released, including the latest from the largest CRE service firm, CBRE Group. CBRE’s Americas chief economist Jeffrey Havsy put it this way: “The commercial real estate markets remain near a ‘Goldilocks’ equilibrium, neither too hot nor too cold. The pace of supply is increasing, but demand remains solid and rent growth is increasing at a sustainable level.” The company is predicting that the office market, at least, is going to have to carry through the rest of the year in a “sustained expansion.”
According to the report, both suburban and downtown office markets vacancies fell in Q3 2015, with the suburban rate dropping by 10 basis points during the quarter, to 15 percent, and downtown rate declining 20 basis points to 10.4 percent. That’s the lowest rates for both since 2008. Naturally, some markets had stronger quarters than others. Indianapolis recorded the largest quarterly decline (a whopping 210 basis points), while Miami, Oakland and San Jose each dropped by more than 100 basis points. Over the past four quarters, markets in California, the Southeast and the Midwest have seen the greatest improvement in vacancies. Among these are Jacksonville, Ventura, Indianapolis, San Jose, Detroit, Oakland, Orlando, Nashville and Orange County.
The demand for apartments remains strong, with the nationwide average vacancy at 4.2 percent, notes the CBRE report. That’s lowest vacancy since end of the ’90s boom (actually Q1 2001), when the rate was 3.9 percent. Remarkably, 16 major markets posted Q3 2015 vacancy rates below 4 percent. Some of the tightest markets are no surprise: greater New York, San Francisco and Los Angeles, San Diego, Miami, Portland (Ore.) and Boston. These have a long history of being relatively tight apartment markets. But there are also some “rising stars” among tight apartment markets, CBRE reports, including Oakland, Minneapolis, Detroit, Salt Lake City and Nashville.
In the industrial market, 39 markets out of 57 markets reported declines in availability rates in Q3, as demand continued to be healthy. Los Angeles, New York and Philadelphia each enjoyed drops of 40 basis points, while Charlotte led the declines with a sizeable 140-basis point drop. Finally, the Q3 2015 retail availability rate of 11.3 percent is now 200 basis points below its post-recession peak of 13.3 percent in 2011. Forty of the 62 retail markets CBRE trackes saw availability declines in Q3, with Louisville, Jacksonville and Philadelphia leading the pack.