Commercial Real Estate Gaining More Ground
The commercial real estate market is improving as vacancy rates decline and rents firm up in the office, retail, industrial and multifamily markets, according to last month’s Commercial Real Estate Spotlight from the National Association of Realtors®.
The report, which is based on data for 57 metro areas provided by Torto Wheaton Research and Real Capital Analytics, forecasts that multifamily housing vacancy rates will drop to 5.7% by the end of this year and 5.2% in the fourth quarter of 2006. Vacancies averaged 6.2% in 2004.
Average multifamily rents are also projected to improve, according to the Realtors®, rising 2.5% this year and 2.7% in 2006, following a a .5% increase in 2004.
The report identified Norfolk, Va.; Washington, D.C.; Los Angeles; Miami; and Riverside, Calif. as the areas with the lowest apartment vacancies. All had rates of 3% or less.
Multifamily net absorptions are projected to be 259,300 units this year and 259,600 in 2006. While these levels are slightly below the 264,300 units absorbed in 2004, they are a marked improvement over 2003, when net absorptions registered only 159,400.
The top markets for multifamily investment are Los Angeles, New York City, South Florida, Washington, D.C. and San Diego, according to the Realtors®.
Conversions of apartments to condominiums continue to shape the dynamics of multifamily investment nationally, the Realtors® report notes, with transaction volume for conversions rising 360% over the last year. Converters have been the largest group buyer of apartments in South Florida, Washington and San Diego.
The report also identifies a new trend in the hospitality sector in which hotels are being converted into condos. Selling hotels to condo converters rather than another hotel operator can almost double the sales price.