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Commercial Real Estate Outlook Positive but Moderating

Media Contact: Walter Molony / 202-383-1177 / Email

WASHINGTON (February 24, 2014) – Market fundamentals in commercial real estate continue to improve but at a slower pace, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun, NAR chief economist, said fundamentals are still on an uptrend. “Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies appear hesitant to add new space,” he said.

“Office demand is expected to see only slow and gradual improvement. Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners,” Yun said.

National vacancy rates in the coming year are forecast to decline 0.2 percentage point in the office market, which has the highest level of empty space, 0.1 point in industrial, and 0.3 point for retail real estate. With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

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

Vacancy rates in the office sector should decline from an expected 15.8 percent in the first quarter of this year to 15.6 percent in the first quarter of 2015.

The markets with the lowest office vacancy rates presently (in the first quarter) are New York City, with a vacancy rate of 9.5 percent; Washington, D.C., at 10.2 percent; Little Rock, Ark., 11.6 percent; Birmingham, Ala., 12.7 percent; and San Francisco and Nashville, Tenn., at 12.8 percent each.

Office rents are projected to increase 2.3 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 44.6 million square feet this year and 50.0 million in 2015.

Industrial Markets

Industrial vacancy rates are anticipated to fall from 9.0 percent in the first quarter to 8.9 percent in the first quarter of 2015.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.7 percent; Los Angeles, 3.8 percent; Miami, 5.8 percent; Seattle at 5.9 percent; and San Riverside/Bernardino, Calif., at 6.1 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 106.1 million square feet in 2014 and 110.6 million next year.

Retail Markets

Retail vacancy rates are expected to decline from 10.2 percent in the first quarter of this year to 9.9 percent in the first quarter of 2015.

Presently, markets with the lowest retail vacancy rates include San Francisco, at 3.1 percent; Fairfield County, Conn., 3.8 percent; Long Island, N.Y., 4.8 percent; San Jose, Calif., 5.2 percent; and Northern New Jersey and Orange County, Calif., at 5.3 percent each.

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 14.6 million square feet this year and 20.9 million in 2015.

Multifamily Markets

The apartment rental market – multifamily housing – should see vacancy rates edge up from 4.0 percent in the first quarter to 4.1 percent in the first quarter of 2015, with additional supply helping to meet growing demand. Generally, vacancy rates below 5 percent are considered a landlord’s market, with demand justifying higher rent.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.1 percent; Minneapolis and New York City, 2.3 percent; and Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.

Average apartment rents are projected to rise 4.3 percent this year and 3.5 percent in 2015. Multifamily net absorption is expected to total 204,900 units in 2014 and 112,500 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 83,000 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.

 

     

The following links are for several popular MLS Searches that clients have requested in the past.  All Searches are up to date.  I can represent you as a buyer's agent on most of the listings shown.

Missouri Churches For Sale      Potential use as Church             Potential use as a Meeting Hall    Potential use as a School

Restaurant For Sale             Bed & Breakfast                Apartment Buildings             Car Wash       

Office Buildings                          Possible use Warehouse             Hotel Motel use                  Possible Self Storage  

Storefronts                     Possible use as Daycare         Professional Service Use         Possible Use Automotive

 Multifamily 2-4 STL city                      Multifamily 5+ STL city                        Multifamily 2-4 5+ STL County  

 

 

This Commercial Real Estate site has three different data bases to search commercial listings.  The left column tab Commercial Property Search is a Realtor .com style of search.  It includes commercial listings from the MLS and many from the CIE.  The LoopNet Property Search  property search is an easy to use routine.  It helps if you use their free registration.  Without a subscription some of the features are limited.  The MAR-CIE Property Search is one of my favorites.  Most commercial realtors use it, but it does not include the MLS commercial listings.  Call me or email to obtain additional information on any listing.  I like to show property.  Do not be surprised when I ask a few questions about whether you are working with a lender.  If you need it I can recommend a couple to fit your needs.

 

 

 

 

Due Diligence Information for a Residential Multi-Family Land Listing

By , About.com Guide

 

 

Is the property zoned for the type of construction planned?:

This is pretty basic, but the zoning of land to be purchased for condominiums or apartments construction should be verified in writing by the appropriate jurisdiction that multi family housing can be constructed. Reliance on zoning maps, particularly in situations close to boundaries, can be a mistake. Multiple jurisdictions, such as county and city/town should all be researched. 

Check the records for the specific piece of property, as it may be located in a specific zoning area but have other deed or prior situational restrictions on usage.

 

Know the building appearance requirements and restrictions:

With escalating land costs, many condominium projects aren't financially feasible unless the units are built with multiple levels or stories. If height restrictions are too limiting, it isn't a viable location for purchase.

Is the area in a historical or other specially-regulated zone where the outside look of the structures is regulated even more stringently than normal codes? Cost of construction can escalate dramatically if the buildings must be built to resemble those of a century ago.

 

Is ingress and egress sufficient or in need of improvement?:

Many municipalities have codes requiring minimum road widths that are greater if higher density projects are constructed with access through current residential areas. Though this will usually come out in the process, it's much better to have this information up front. If streets must be widened, even if the town or county will fund it, it can take years.

 

Are utilities available, how far away and are capacities sufficient?:

The statement that utilities are "at the lot" is a common one. In residential single family construction, this is usually a safe statement upon which to rely. However, if 50 condominium units are the plan for a land purchase, gas and electric lines installed years ago for single family homes can be woefully small for the job. This will require significant and expensive upgrading and can take a long time.

 

Maximum land coverage limits can ruin building plans:

It's becoming ever more frequent to see limits on the amount of square footage on a parcel that can be covered by building footprints or even by concrete for parking.

It can be expressed as a percentage of the overall lot size, as in 40%. If you have an acre of land, this would limit coverage to 17,424 square feet. If this limitation includes paving, it could make a project not feasible economically.

 

Don't forget lot line setbacks and required parking space:

This is another rather obvious consideration. But be careful to determine the setbacks from all sides of the lot. They can vary, not only by side of the lot or orientation, but also based on what is across the street in some cases. Municipalities can also make special setback requirements based on the type of construction. An example would be increasing the setback for perimeter visitor parking for an apartment project in order to limit interior traffic.

 

Are there codes limiting the rental of the condominium units?:

Though these types of restrictions are normally set by the condominium developers, they can be in the form of municipal codes or area use restrictions. If it's a vacation or resort community, buyers may want to do some vacation rental of their units. If that's not allowed in the area, it can negatively impact unit sales.

 

Knowing all this, why wouldn't the information be attached to the listing?:

We all should agree that, as a buyer representative, we want to advise our buyer to look into all of this, as well as help them to locate the information at official sources.

However, why would we not, as the listing broker, want to place the government documents or links to them with the listing? The fear of liability shouldn't cause us to poorly serve our clients. A disclaimer to the effect that the information is for early property comparison only and should be verified in total by the buyer should suffice.

The listing broker should be earning a commission for advising their client and for marketing the property. Marketing would imply that, if the property is presented as a "Great Condo Site!", there be some backup data to indicate that it can really be used for that purpose.


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