Latest posts by Randolph Taylor (see all)
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- Marcus & Millichap Arranges Sale of a 24-Unit Apartment property in Aurora, IL - April 29, 2019
Latest Commercial Real Estate Trends Q3 2016
Armageddon on Hold for Four Quarters
- The national vacancy rate for multifamily remained moored at 4.4% in the third quarter, unchanged since the fourth quarter of 2015 despite the large number of new deliveries.
- This confirms what we have posited thus far about demand remaining robust even as supply growth increases. With that said, this equilibrium is tenuous and likely won’t last.
- For markets that experienced either a large increase in rents over the last few years, or a steady influx of new buildings – or both – landlord pricing power is being tested.
- Market conditions in the apartment market softened a bit in the third quarter, a period they generally see the highest activity and strongest rent growth.
On Pause, Those Fine Hopes for 2016
- We started 2016 feeling fairly optimistic about the prospects of the office sector. With the national vacancy rate declining by 40 basis points last year, we were poised to finally see an acceleration in improvement in fundamentals for the office sector.
- With national vacancies remaining stuck at 16.0% in the third quarter, it appears that optimistic hopes about the prospects of the office sector have been put on hold – at least till the fourth quarter.
- While the numbers disappointed in the quarter, much of the decline was a lagged response to tepid employment and economic conditions in the first quarter.
Two Steps Forward, One Step Back
- The national neighborhood and community center retail vacancy rate increased by 10 basis points during the third quarter to 10.0%; the retail mall vacancy rate decreased by 10 basis points to 7.8%.
- Both minor changes represent a reversal in the second quarter when the neighborhood and community center vacancy rate decreased and retail mall vacancy increased, both by 10 basis points.
- Neighborhood and community centers have lagged due to the slow growth in median household income that has kept a lid on discretionary spending over the last few years.
- Both neighborhood and community centers and regional malls face competition from newer and fresher retail concepts as well as e-commerce.
A Downshift in Demand
- The momentum in the industrial market slowed a bit as demand growth decelerated. Nevertheless, vacancy held steady in the warehouse and distribution sector as net absorption exceeded new construction by a small margin.
- Although the industrial sector has outperformed other property types in terms of occupancy growth, the down-shift observed in the third quarter puts the asset class on par with office and retail which followed a similar pattern.
- Echoing the sentiment we expressed last quarter, the slow but steady rate of growth should continue going forward as most metros continue to see demand growth for industrial space.
- Vacancy declined in the Flex/R&D subsector largely due to a sharp drop in new construction.
- Net absorption slowed somewhat but remained positive. Market rents increased but also at moderate rates, similar to the second quarter.
- Once again, every metro posted positive rent growth for the quarter, although some outperformed others.
New Construction at the Cusp of Economic Change
- The third quarter of 2016 was marked by a somewhat consistent trend – a pronounced pullback in new completions, relative to recent quarters.
- This is readily apparent in the apartment and office sectors, but less so in neighborhood and community shopping centers where supply growth has been anemic for several years anyway.
- What caused this pullback – especially in multifamily where we were expecting a deluge in new supply?
- Any pickup in activity for new completions is likely to be driven by projects that are already in the pipeline, just waiting to come online in what may well be a deluge for the apartment sector in the fourth quarter.