Vacancy Rates and Rental Rates May Stabilize in Late 2009, Early 2010, Predicts Report

Commercial real estate markets worldwide are beginning to show the effects of an economic slowdown that started in the U.S., and has quickly spread around the globe, according to the annual Global Market Report released by NAI Global, a commercial real estate services provider.

A “massive restructuring” is taking place worldwide, with new development projects being placed on hold, according to Dr. Peter Linneman, NAI Global Chief Economist and Principal at Linneman Associates, who predicts that “the next 12 to 18 months will redefine industry practices for the next decade.”

In the U.S., the national average effective rental rate for Class A office space in downtowns climbed 13% to $47.31 per square foot in 2008, while the vacancy rate increased from 7% to 10.3%. In the U.S. suburbs, rent rates rose a modest 2% to $26.32 per square foot, while vacancy rates increased to 13%. Vacancy rates are expected to increase more significantly in the suburbs.

The retail property sector is still reeling from a sudden and dramatic drop in consumer confidence and spending. The fragile state of the economy is reflected in the empty downtown storefronts where vacancy rates increased 14% to 7.5% in 2008. However, the national average rental rate for downtown retail space increased 7% to $51.28 per square foot, while the average rental rate for regional malls fell21%.

“We believe we will see further erosion in all sections before vacancy rates and rental rates stabilize in late 2009 or early 2010,” says Jeffrey Finn, President and CEO of NAI Global. “Like everyone else, we are hopeful the federal TARP programs and President-elect Obama’s infrastructure investment plan will help get the U.S. economy back on a growth track, and be a catalyst for improvement in the commercial real estate sector.”

Source: NAI Global.