Multifamily vacancy continued to climb to 6.9% in Q2, marking a 0.4% increase over first quarter. New development remains concentrated in entry markets in the South, including Atlanta, Dallas, Phoenix and Denver. Construction in the Northeast has remained much more subdued by comparison. Overall, the report indicates that new multifamily construction rates have begun to stabilize after a 13.4% decline from June 2001-June 2002, indicating that the multifamily market may have finally bottomed out. The apartment vacancy rate is expected to peak at just above 7% by the end of this year.

Office vacancy rates continue to rise, albeit at a much slower rate than earlier expected, predicting that this sector too may have finally hit bedrock. Led by Dallas and Boston, net absorption was negative in 33 of the 54 markets tracked by PPR in the first quarter, up from 44 of those markets the in Q1. Positive net absorption is expected to resume in the near term, and demand should continue to improve over the next several quarters. An eminent economic recovery and a slowdown in new office construction should allow the market to regroup and reemerge strongly in the near future.

Construction activity in retail continues to taper off, although new supply continues to exceed demand. Vacancy rates peaked at 13% mid-year and are expected to drop as consumer spending gains momentum. In the meantime, discount department stores and wholesale clubs continue to prosper as consumers seek the most value for their dollar. Big-box and grocery-anchored centers account for a majority of the recent construction, a trend the report indicates could pose a credible threat to traditional grocers. Regardless, the retail sector has proven more resilient to the economic slump than other areas.