Boston, October 7, 2011
– The national office vacancy rate remained unchanged in the third quarter (Q3) of 2011at 16.2%, according to the latest analysis from CBRE Econometric Advisors (CBRE-EA).
The national industrial availability1 rate decreased by 20 basis points (bps) to 13.7% in Q3 2011, according to CBRE-EA. This marks the fourth consecutive quarterly decline in industrial availability.
In Q3 2011 the retail availability rate remained unchanged, compared to the previous quarter, at 13.2%.
Preliminary data for Q3 2011 indicates that U.S. apartment demand grew at a slightly stronger pace than it did in the first half of the year, with the national vacancy rate declining to 5.1%, a 70 bps drop from a year ago.
“While only the multifamily sector saw significant strengthening this quarter, net absorption remained positive in all sectors,” said Jon Southard, Director of Forecasting, CBRE-EA. “Though there is clearly concern about the pace of economic growth, Q3’s commercial real estate results have remained in line with the modest pace of recent previous quarters.”Office Market
Following four consecutive quarters of improvements, the office vacancy rate remained unchanged at 16.2% in Q3 2011. Aggregated vacancy rates for downtown and suburban submarkets held steady in Q3 2011 at 13% and 18%, respectively. The office vacancy rate is now 50 bps lower than it was in the third quarter of 2010, and is reflective of the trends in the overall economy: slow improvements despite financial market jitters and sovereign debt concerns.
Market-by-market performance this quarter showed mixed results. Occupancy improved in just over half of the markets tracked; vacancy fell in 33 out of 62 markets, rose in 24 and remained unchanged in five. As with previous quarters, markets with high-tech exposure like Austin, Pittsburgh and San Jose were among the best performers, continuing to benefit from the nationwide economic recovery and the subsequent demand for high-tech products and services. After significant improvements in the first half of the year as tenants took advantage of favorable market conditions, housing markets like Miami and Jacksonville were among the lower performers in Q3 2011, suggesting that for select housing-focused markets the cycle is not over just yet.
Many markets (27 of 62 markets) including large gateway locations like New York, Washington, D.C. and Boston, continue to see vacancy changes within the ±20 bps range, suggesting that office markets have reached a point where the role of job growth will become the driver of absorption as low face rents and concessions, which drive absorption early on in a recovery, are starting to turn around.Industrial Market
The decline in Q3 2011 marks the fourth consecutive quarterly decrease in industrial availability, with the recovery driving down the availability rate in most markets. During the quarter, 40 industrial markets reported falling availability rates, six saw no change and the remaining 14 reported increases. Among larger markets, Indianapolis dropped by 100 bps, Denver decreased by 60 bps, Los Angeles fell 50 bps, and Chicago, the nation’s largest industrial market, experienced a drop of 30 bps.
With most markets reporting improvements in their availability rates, it appears the economic soft patch experienced over the summer was not enough to lead to wide spread weakness. Some of the larger markets did report notable weakness however, including Detroit, Fort Worth, and Cleveland. Although these markets surprised with increases in their availability rates, much of this may be attributable to specific supply chain related factors associated with the Japanese earthquake.Retail Market
After two consecutive quarters of availability rate increases, the retail availability rate was unchanged in Q3 2011. The consumer recovery continues to progress with year-over-year growth in core retail sales ranging between 5% and 6%; growth in the three major categories (necessity, discretionary and housing) remains positive as well. However, even though availability rates have stabilized, retailers remain cautious and the retail recovery may continue to be uneven in the coming quarters.
Some of the larger markets which recorded declines in retail availability were Houston, Atlanta, Boston and Riverside while large markets such as Los Angeles, Chicago, Phoenix and Detroit witnessed continued decreases of availability rates in Q3 2011. The majority of the retail markets are still above their availability rates from one year ago but notably markets such as Salt Lake City, Pittsburgh, Indianapolis and Columbus are all one percentage point below their Q3 2010 availability rate. If there were further deterioration of economic conditions, these markets may be in a better position to weather such deterioration compared to markets such as Tucson, Cleveland and Fort Worth which remain more than one percentage point above their Q3 2010 availability rate.Apartment Market
Q3 2011 results show that apartment vacancy is now down to its levels of mid-2008—just 30 bps above the historical norm. Compared to a year ago, vacancy rates declined in 53 out of 60 markets. Markets with the biggest year-over-year declines in vacancy (150 bps or more) include Detroit, Birmingham, Dayton, Cleveland, Memphis, Austin, Dallas, and Charlotte. Markets with the lowest (4% or less) vacancy rates include Pittsburgh, Seattle, Boston, Oakland, Minneapolis, San Francisco, San Jose, Portland, Los Angeles, Detroit, Miami, Columbus, Albuquerque, Cleveland, Washington DC, Edison (New Jersey), Baltimore, and New York. Markets with the highest (8% or more) vacancy rates include Las Vegas, Phoenix, Houston, Jacksonville, and Atlanta. Given the steady improvement in demand, effective rent growth continues to gain momentum: the national index is now rising at an annualized rate above 4%.1 Availability is space that is actively being marketed and available for tenant build-out within 12 months.About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com