Commercial Real Estate Forecast: Partly Sunny for Retail and Multi-Family; Partly Cloudly for Office and Industrial

The latest Commercial Real Estate Outlook published by the National Association of REALTORS ("NAR") notes Commercial real estate conditions are uneven across the country and vary notably in some areas.

NAR’s report states that just like residential real estate, performance in the commercial sectors is greatly mixed across the country. Commercial fundamentals are good, but investment has been hurt by the credit crunch – investment in the commercial sectors decelerated in the first quarter after setting a record in 2007.

During the first three quarters of 2007, commercial real estate investment was in excess of $100 billion per quarter. In the first quarter of 2008 it slowed to the range of $35 billion to 38 billion.

The following information is NAR’s forecast in four major commercial sectors.

Office Market
Net absorption of office space in 57 markets tracked, including the lease of new space coming on the market as well as space in existing properties, should decline from 21.2 million in the second quarter of 2007 to 8.7 million in the current quarter.

Office vacancy rates are forecast to average 13.3 percent in the fourth quarter, up from 12.5 percent a year earlier. Annual rent growth in the office sector is likely to be 3.5 percent in 2008, compared with 8.0 percent last year.

Industrial Market
Net absorption of industrial space in 58 markets tracked is estimated to edge down from 35.4 million square feet in the second quarter of last year to 33.3 million in the second quarter of 2008.

Industrial vacancy rates nationally will probably rise to 9.6 percent in the fourth quarter from 9.4 percent in the same period in 2007. Annual rent growth should be 3.3 percent by the end of 2008, compared with 3.6 percent in the fourth quarter of last year.

Retail Market
Net absorption of retail space in 53 tracked markets is seen to rise from a negative 169,000 square feet in the second quarter of last year to 6.4 million square feet in the current quarter.

Vacancy rates are projected to decline to 8.8 percent by the fourth quarter from 9.2 percent at the end of last year. Rents are forecast to rise an average of 1.4 percent in 2008 compared with a 3.2 percent increase last year.

Multifamily Market
Net absorption in the apartment rental market – multifamily housing – is expected to rise slightly in 59 tracked metro areas, from 70,700 units in the second quarter of 2007 to 71,800 units in the current quarter.

Vacancy rates are projected to average 4.8 percent in the fourth quarter, down from 5.1 percent at the end of 2007. Rents are likely to rise 3.8 percent in 2008, up from a 3.1 percent gain last year.

This article was reproduced with permission from co-authors Chris Bell, Assistant Director of CABOR (Cleveland Area Board of Realtors) and Howard Lichtig, Vice President of CB Richard Ellis, Commercial Real Estate (Cleveland, Ohio Office). CABOR ( is a professional organization for real estate professionals and for businesses that work in or with the real estate industry. CABOR provides a variety of services to its members including education, insurance, and legislative representation. CB Richard Ellis ( is a global leader in real estate services providing local expertise within its world-wide network. Its highly regarded services include Brokerage, Facility Management, Development/Investment, Valuation and Appraisal, Market Research and a litany of miscellaneous corporate services. Mr. Lichtig has over 20 years of experience and a long list of professional accolades including multi year "Top 5 Producer" , "Tradition of Excellence" and "Finalist, Industrial Transaction of the Year" awards, Industrial Broker of the Year, and CABOR Commercial Realtor of the Year. Mr Lichtig can be reached at

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