The improving U.S. economy continues to strengthen the commercial real estate market, although recovery has been unevenly distributed across property types and geographic locations. Transaction activity overall continues to improve, driven in large part by the exceptionally low interest rate environment. Vacancy rates across the four major property types have nearly returned to their historical averages and distressed sales volume is now at its lowest level since 2008. The apartment sector has been the dominant force in commercial real estate gains in this cycle. However, the industrial sector is fast emerging as the new favorite. While apartment demand remains robust with supply close on its tail, the demand for industrial space, particularly warehousing, continues to far outpace supply, which has driven rent growth and vacancy decline. Retail and offi ce space, on the other hand, have experienced much less improvement. Notwithstanding, the general lack of new construction (supply) during the last four years, combined with pent-up demand caused by economic uncertainty, should cause rents, occupancy and property values to increase for the next several years. This trend is good news for firms involved in transaction-driven property assessments as it will result in continued property level performance improvements and increased transaction levels in 2014.
For our full analysis, read the complete 4th quarter market intel report here.