Commercial fundamentals continued on an upward trend in the first quarter 2015, despite a slumping economy, however the pace moderated. Net absorption rose across the property types, driving rents higher. As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.

Office absorption is projected to total 51.8 million square feet in 2015, leading vacancy rates on a gradual decline to 15.5 percent by the end of the year. Office rents are forecast to rise 3.4 percent in 2015.

Industrial markets—anticipating the opening of the Panama Canal—have seen high warehouse demand. Industrial net absorption is expected to total 108.8 million square feet in 2015, driving availability rates to 8.2 percent by the fourth quarter.  Industrial rents should experience a 3.1 percent gain for the year.

With rising consumer confidence, the outlook for retail markets is looking up. Absorption is expected to reach 15.7 million square feet nationally in 2015, lowering vacancies to 9.5 percent by the last quarter of the year. Rents are projected to rise 2.6 percent this year.

Multifamily demand is expected to benefit from growing household formation, with net absorption is estimated to reach a little over 172,500 units in 2015, while new apartment completions will add 230,200 units. Apartment vacancies are expected to rise throughout the year, and close the fourth quarter at 4.4 percent. Rent growth is projected to slow from above 4.0 percent over the past few years to 3.6 percent in 2015.

Underpinning these improving fundamentals, commercial asset cash flow is certainly on the rise. Based on the REALTORS®Commercial Lending Trends 2015 report, net operating income (NOI) increased in 48 percent of markets. For 17 percent of REALTORS®, NOI increased in the 1 – 4 percent range. For 14 percent of respondents, NOI rose between 5 – 9 percent, while for 17 percent of commercial practitioners, the increase in NOI occurred in the 10 – 15 percent range.

net operating

According to the 2015 data, the increase in NOI moderated from the accelerating trends of the past few years. The percentage of REALTORS® who reported “No Change” in NOI rose from an average of 25 percent during 2012 - 2014 to 32 percent in 2015. The figure indicates a broadening in the patterns of CRE fundamentals recovery.

For more information and the full report, access NAR’s Commercial Lending Trends 2015 at http://www.realtor.org/reports/commercial-lending-trends-survey.

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