Dennis Norman Musings

Dennis Norman

By: Dennis Norman

Today the National Association of REALTORS(R) published their Commercial Leading Indicator for Brokerage Activity for the second quarter of 2009 showing a decline of 1.3 percent to an index of 101.5, down from an index of 102.8 in the first quarter. At 101.5 the index for the second quarter of 2009 is 13.7 percent below the 2nd quarter of 2008 when the index was at 117.6. The index is currently at the lowest level since the first quarter of 1994.

In reviewing NAR’s report, it doesn’t appear any of the sectors have been able to avoid a slowdown, below is a recap by sector:

• Office market – this sector continues to suffer the most from job losses, which reduces the demand for space. Office vacancy rates will probably increase from the current 15.5 percent to 18.8 percent in the second quarter of 2010, according to NAR.
  • Annual rent in the office sector is projected to fall 14.1 percent this year and 10.0 percent in 2010 after a 0.4 percent decline last year.
• Industrial market – The contracting global economy has constricted the industrial sector. Industrial vacancy rates are likely to rise from the present 13.0 percent to 15.0 percent in the second quarter of 2010, NAR predicts.
  • Annual industrial rent should fall 11.4 percent this year and another 11.7 percent in 2010, after declining 0.8 percent in 2008.
• Retail market – Due to weak consumer spending, the retail vacancy rate is forecast to edge up from 11.7 percent to 12.9 percent in the second quarter of 2010 according to the NAR report.
  • Average retail rent is likely to fall 6.1 percent in 2009 and 4.9 percent next year. It declined 2.0 percent in 2008.
• Multifamily market – The apartment rental market is facing higher home sales by first-time buyers, but also is experiencing increased demand from families who have lost their homes. Multifamily vacancy rates should slip from 7.4 percent in the second quarter of 2009 to 7.1 percent in the second quarter of next year.
  • Average rent is projected to decline 1.5 percent this year, then rise 0.8 percent in 2010, following a 2.9 percent gain in 2008.

Lawrence Yun, Chief Economist, NAR

NAR Chief Economist, Lawrence Yun, noted the pace of decline has moderated, the the leading indicator has fallen sharply and quickly from the peak, suggesting much lower business opportunities for commercial real estate practitioners engaged in leasing, sales and property management. “The reduction in commercial real estate activity is expected at least through the first quarter of 2010. Any meaningful recovery is not likely to occur before the second half of next year.”

For those agents and brokers in the residential market, we have had to live with a serious market downturn since late 2007 and the downturn has clearly overtaken the commercial market now as well. However, if Lawrence Yun is correct in his comments about a recovery next year, it sounds like those brokers and agents in the commercial market may not have to suffer quite as long as their residential counterparts have if they are lucky.