Predicted CRE Uptick Pans Out

Commercial real estate continues to improve at a moderate pace, according to Forbes, which forecasted the slow-and-steady uptick six months ago. Several other commercial real estate companies report positive news: The office market enjoyed 11 consecutive quarters of occupancy growth and eight straight quarters of rent increases, according to real estate firm Jones Lang LaSalle, while REIS Inc. reported national figures for office vacancy that are only slightly lower than a year ago. Meanwhile, Deloitte’s annual commercial real estate survey notes low construction levels in office space—a good sign for owners’ future occupancy and rent rates.

There are some limiting factors on the office rebound, though. First, the pace of economic growth is subdued. Second, high tech is a growing element of office occupancy. This is problematic for owners because of the software industry’s preference for putting many programmers in one large room, which cuts the square footage per worker.

On the retail side, retail space is seeing more absorption than construction. Real estate experts are worried that retail spending has increased only 4.4 percent in the past 12 months. A year ago there was a 6.2 percent gain, and a year before that a 7.8 percent increase. While the recent figure is certainly an increase, it’s not particularly fast. Experts say that, given the risks the industry is still exposed to, it may be better for owners to offer tenants a long-term lease at a lower rental rate than to hold out for a premium rent in a year or two.

Not a subscriber? Click here for a free trial issue!