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Slowdown Impacts Commercial Real Estate Markets, but Modest Improvement Seen

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Staff Writer |

WASHINGTON — Commercial real estate vacancy rates are flat and projections for growth have been moderated because economic growth and job creation have been weaker than expected, but modest improvements are expected over the coming year, according to the National Association of Realtors®.

The weakening economy will slow the growth in demand for space, says Lawrence Yun, NAR chief economist. “Disappointing economic growth in recent months means a slower recovery for most of the commercial real estate sectors, although multifamily housing continues to benefit from pent-up demand resulting from an abnormal slowdown in household formation in recent years.

“Many young people, who normally would have struck out on their own from 2008 to 2010, had been doubling up with roommates or moving back into their parents’ homes. However, they’ve been entering the rental market as new households in stronger numbers this year. As a result, apartment vacancy rates are declining and rents are rising at faster rates.”

Growth in the Gross Domestic Product slowed to 0.4% in the first quarter and 1.3% in the second quarter, much lower than the 4-5% expansion needed after a recession.

“A healthy recovery is already occurring in the multifamily sector, with average apartment rent expected to rise 2.5% this year and another 3.2% in 2012,” Yun says. “Normally, rising rents correspond to rising home prices. However, this isn’t happening in this recovery because buyers are constrained by unnecessarily restrictive mortgage underwriting standards.”

Looking at commercial vacancy rates from the third quarter of this year to the third quarter of 2012, NAR forecasts vacancies to decline 0.3 percentage point in the office sector, 0.6 point in industrial real estate, 0.7 point in the retail sector and 0.9 percentage point in the multifamily rental market.

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