All four sectors of commercial real estate continue to experience growth, but at different rates, the National Association of Realtors® (NAR) said today. The Association's quarterly commercial real estate forecast sees vacancy rates for commercial property decreasing by 0.2 percentage point over the next year, but office vacancy rates are unlikely to match the improvement in the retail and industrial sectors where vacancies are expected to fall by 0.6 point.  Multifamily properties are already experiencing low vacancies with demand supporting rapid rent increases and that is likely to continue.

Lawrence Yun, NAR chief economist said, "Office vacancies haven't declined much because total jobs today are still below that of the pre-recession level in 2007, but rising international trade is boosting demand for warehouse space.  Consumer spending has been favorable for the retail market, and rising construction is keeping apartment availability fairly even, though at low vacancy levels.  That, in turn, is pushing apartment rents to rise twice as fast as broad consumer prices and average wage growth."

Multifamily housing is expected to see an increase in vacancy rates of only 0.1 percentage point, moving from 3.9 percent in the third quarter of 2013 to 4.0 percent in the same quarter next year with construction rising to meet increased demand. Net absorption of multifamily housing is projected at 266,700 units in 2013 and 259,800 units in 2014.  NAR said that a vacancy rate below 5 percent is considered a landlord's market where demand justifies higher rents.  Consequently average apartment rents are expected to rise 4.0 percent in both 2013 and 2014.

Areas with the lowest multifamily vacancy rates currently are New Haven at 1.9 percent; Syracuse, 2.0 percent; New York City and San Diego, at 2.1 percent each; and Minneapolis, 2.2 percent.

Vacancy rates in the office sector are expected to decline from a projected 15.7 percent in the third quarter to 15.5 percent in the third quarter of 2014.  This translates to net absorption of office space, including new space coming on line as well as existing space of 30.1 million square feet and 41.6 million square feet respectively this year and next.  Rents for office space are expected to increase about 2.5 percent in 2013 and 2.8 percent in 2014. 

Currently the best markets for office space are Washington, D.C., with a vacancy rate of 9.7 percent; New York City, at 9.8 percent; Little Rock., 12.1 percent; and Birmingham, 12.4 percent.

Industrial vacancy rates are likely to fall from 9.3 percent in the third quarter of this year to 8.7 percent in the third quarter of 2014. Net absorption of industrial space nationally is anticipated at 102.0 million square feet in 2013 and 105.8 million in 2014.  Rents increases are anticipated at 2.4 percent this year and 2.6 percent next year.  .

Perhaps reflecting Yun's analysis that international trade is bolstering the industrial sector, the lowest industrial vacancy rates are all in coastal areas; Orange County, California, 3.8 percent; Los Angeles, 4.0 percent; Miami, 5.9 percent; and Seattle 6.4 percent.

Retail vacancy rates are forecast to decline from 10.6 percent in the third quarter of this year to 10.0 percent in the third quarter of 2014 with net absorption of retail space projected at 11.8 million square feet in 2013 and 18.2 million in 2014. Rents should increase 1.5 percent and 2.3 percent in the next two years. 

The healthiest retail markets include San Francisco with 3.9 percent vacancies, Fairfield County, Connecticut at 4.1 percent; Long Island, 5.0 percent; and Orange County, California at 5.5 percent.