Office Rents Expected to Contract; Retail Vacancy Rates to Rise, Predicts NAR

The continuing trend of rising unemployment will have a severe impact on the demand for commercial space in 2009, and office rents are likely to contract. At the same time, continuing declines in spending will continue to affect the retail sector, says the quarterly Commercial Real Estate Outlook issued by the National Association of Realtors (NAR).
The supply and demand for commercial space will vary greatly depending on location and impact those businesses that want to sell and lease space, according to Realtors Commercial Alliance Committee chair Steve Good, president/CEO of Sheldon Good & Co., Chicago, Ill.

NAR projects that vacancy rates in the office market will increase to 16.4% in the third quarter of 2009, compared to 13.4% in the third quarter of 2008. Office markets with the lowest vacancies currently include: New York, Honolulu, and Seattle, all with vacancy rates of 9.6% or less. The highest vacancies are in Detroit, Phoenix, and Dallas, with vacancies exceeding 20 percent.

Annual rent in the office sector is expected to decline another 3.6% this year. In the 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties will contract by 63.0 million in 2009.

The news is gloomier for the retail sector. Retail vacancy rates are expected to be at 12.7% in the third quarter of 2009, up from 9.8% in the third quarter of 2008. Retail markets with the tightest vacancies include: Detroit; Columbus, Ohio; and Fort Worth, Texas, with vacancies of 15.6% or higher.

Average retail rent is expected to fall another 7.3% in 2009, and net absorption of retail space in 53 tracked markets will contract by another 35.7 million in 2009.

Source: National Association of Realtors