NAR: 2017 Will Be Strong Year for Commercial

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Strengthening demand from smaller markets will help the commercial sector see stable growth and offer “decent” returns for investors in 2017, according to the National Association of REALTORS®’ quarterly commercial real estate forecast.

Read more: Contemplating a Career in Commercial Real Estate?

NAR predicts that the national office vacancy rate will drop 1.1 percentage points to 12.1 percent this year. Job growth in the business and professional services sector is expected to increase the need for office space in 2017.

Further, the vacancy rate in the industrial space is predicted to drop 1.3 percentage points to 7.1 percent, while retail space availability will likely drop slightly by 0.7 percentage points to 11.2 percent. The multifamily sector will likely have little change to its vacancy rate over the next year as apartment completions stay at 6.5 percent, NAR reports.

“Renewed corporate optimism leading to a focus on investment and a desperately needed boost in residential construction should pave the way for modest expansion this year of around 2.4 percent” in GDP growth, says Lawrence Yun, NAR’s chief economist. “Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”

The apartment sector is expected to remain the top performer in commercial real estate, as supply and affordability challenges continue to block the country’s homeownership rate from any “meaningful improvement,” NAR notes.

“Especially in the costliest metro areas, higher home prices and mortgage rates are squeezing the budget for many renters looking to buy and inevitably forcing them to sign a lease for at least another year,” says Yun. “Similar to the biggest ongoing challenges in the residential market, supply and demand imbalances continue to put upward pressure on commercial property prices as investors search for yield in smaller markets. REALTORS® are increasingly citing inventory shortages as their top concern as the pace of new projects slows in large cities and middle-tier and smaller markets see a growing appetite for space.”