Commercial real estate should remain on upward trend

by Ryan Smith30 Aug 2016
Commercial real estate activity should continue to rise as the labor market improves and demand for multifamily housing remains strong, according to the National Association of Realtors.

The NAR is projecting national office vacancy rates to drop 1.5% to a rate of 10.4% over the coming year. The vacancy rate for industrial and retail spaces are also expected to decline, with the NAR projecting a 0.7% drop to 8.7% and a 1% drop to 10.5%, respectively. Only the multifamily sector is expected to see increased vacancies as new apartment construction boosts available space.

While vacancy rates are dropping, NAR chief economist Lawrence Yun warned that prices will probably correct themselves after rising too high.

“Tightening vacancy rates and rising rents are clear positive fundamentals, but commercial real estate property prices have been bid up too high and look to weaken in the upcoming months,” Yun said.

And Yun pointed out that underwriting standards have also tightened in response to increased regulatory scrutiny.

“Any further tightening in credit standards, which never fully normalized after the recession, would inflict the most pressure on the small and mid-sized businesses that mostly look to community banks and credit unions for commercial property financing,” he said. “Not having the necessary access to capital could keep a lid on building and leasing activity and in turn keep the economy from getting closer to its long-term average of 3 percent growth.”


Should CFPB have more supervision over credit agencies?