By BEX Staff for AZBEX
A recent report from REIT.com shows commercial real estate market fundamentals remain strong even in the face of ongoing economic uncertainty.
The report looked at the issues of construction volumes, absorption/deliveries, vacancy rates and rental growth in Apartments, Industrial, Office and Retail. The following is a snapshot of the findings.
Apartments
Apartment construction as a percentage of existing stock remained close to its peak level of 4.6%. The current pace is almost double the average in the year leading up to the Great Recession.
Q2 marked the third consecutive quarter in which net deliveries outpaced absorption. In the three quarters preceding those, excess net demand hit all-time highs.
Apartment vacancies continue to remain well below their historic averages, increasing slightly to 5.1% in Q2. After not falling below 6.0% since 2001, vacancies have spent the last four quarters in sub-6% territory.
The apartment sector’s frantic pace of rental rate increases finally moderated slightly in Q2, reaching ‘only’ 9.7% after three quarters of growth greater than 10%.
Industrial
Industrial space under construction in Q2 equaled almost 650MSF, or 3.6% of current stock – an all-time high.
Excess net demand in industrial has been positive for seven consecutive quarters. Q2 saw 98MSF absorbed and 94MSF delivered.
Industrial vacancies fell to 3.9% in Q2, an all-time low.
Industrial rents increased 3.1% last quarter and 12.3% over the last three quarters. Industrial rents and rent growth rates are at all-time highs.
Office
With impacts from the pandemic and the ongoing trend toward remote and hybrid work, office remains in a slump, with Q2 construction equaling only 1.7% of current stock.
With 4.5MSF absorbed, office saw its fourth straight quarter of positive demand. Those, however, followed five straight quarters in the negative.
Vacancy rates remained relatively flat, nudging up slightly to 12.3% in Q2. Rates are not expected to improve without a significant uptick in demand.
Office rental rates have hit -2.1% in growth over the four quarters since the early pandemic. The modest growth of 1.2% the sector realized in Q2 remains far below pre-pandemic rates.
Retail
Retail construction has stayed mostly flat through the pandemic and after. Q2 saw 59.4MSF under construction, representing approximately 0.5% of current stock – the same general level the sector has maintained since mid-2019.
Retail’s construction volume and output remain minimal. Net absorption exceeded net deliveries in Q2 for the fifth consecutive quarter.
An increase in demand pushed retail vacancies down to 4.4% in Q2, which is the lowest the sector has experienced since Q3 2018.
Retail rents continued to enjoy slight increases in Q2, rising 1.2%. For the past four quarters, the sector has increased 4.4%.
Across all CRE sectors examined, rental growth rates have maintained gains for the past four quarters.