In the office sector, the latest vacancy rate in Q1 was 8.9% here. NAR anticipates a decline to 8.4% by year end. For multifamily, the vacancy rate is 2.9%, which is very tight for the area. "One reason is that the strong run up in residential home prices here has been such that many people cannot afford to buy a home anymore," Yun says. Vacancy rates in rentals are anticipated to decline by 2.7% by year end in the DC area, while rents are projected to rise by 4.7%.
Rising energy costs and rising interest rates, though, may temper these projections, Yun adds. These factors have the potential to limit growth throughout most major markets in the US, including the DC area. "We already anticipate that the economy will be subpar over the next couple of quarters but if energy prices continue to rise and interest rates get out of hand then our projections could be more pessimistic."
Already, the retail sector is beginning to feel the affect from these factors. "We are anticipating that this sector's performance will soften because we see consumer spending is already decelerating," Yun says. "That has been surprising because up until now retail has been a very strong performer." In particular the retail sector in the industrial Midwest--which has experienced job losses for five straight years--is showing signs of slackening performance, he notes.
In general though, Yun says, the commercial real estate markets are performing well, despite the impact of rising oil prices, and somewhat neutralizing the softening in residential prices. Vacancy rates in the office sector are on average expected to drop to an average of 12.7% in the Q4 from 13.6% during the same period in 2005. Office rents are forecast to rise 4.4% this year. Besides Washington, other markets with low office vacancies--8.8% or less--include Ventura County, CA; New York City; Orange County, CA; Fort Lauderdale, FL; and Riverside, CA.
NAR expects industrial vacancy rates to decline to an average of 9.5% during the second half of the year from 9.9% in the final quarter of 2005, with new construction increasing along with space absorption. Industrial rents are likely to increase only 1.9% this year, however. The areas with the lowest industrial vacancies are West Palm Beach, FL; Los Angeles; Fort Lauderdale; Las Vegas; Miami; and Orange County, CA, all with vacancy rates of 5.4% or less.
Retail vacancy rates are projected to be fairly stable for the rest of the year, at an average of 7.6% in the fourth quarter, but higher than the 7.2% recorded in the fourth quarter of 2005. Average rent is expected to grow 0.7% in 2006. Retail markets with the lowest vacancies include Las Vegas; Miami; Orange County, CA; San Francisco; San Jose; and San Diego, all with vacancies of 3.9% or less.
Multifamily housing vacancy rates in Q4 are forecast to average 5.7% compared with 6.2% during the same period in 2005. Average rent is forecast to rise 4.1% this year compared with 2.9% in 2005. Besides Washington, the areas with the lowest apartment vacancies include Fort Lauderdale, Northern New Jersey, West Palm Beach, Miami and Tampa, all with vacancy rates of 2.5% or less.
Hotel occupancies are forecast at 63.4% in 2006 compared with 64.5% last year, and revenue per available room is projected to grow to $72.37 in 2006, up 7.5% from $70.47 last year. Markets with the highest RevPAR include New York City, Washington, Honolulu, West Palm Beach, San Francisco and Miami, with RevPAR more than $103, compared to the national average of $80 expected for the first quarter, which is the highest ever.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
