Rise of US vacancy rates continue to slow down

BOSTON: The rise in vacancy rates in the US office, industrial and retail markets continued to slow down in 2Q2010, with each sector recording a slight increase of 10 basis points (bps), according to the latest analysis from CBRE Econometric Advisors.

CBRE said that the recent drop in vacancy implied that national demand is now expanding at a rate approaching 300,000 units per year.

It added that the suburban office vacancy rate fell for the first time in three years – by 10 bps – while the downtown vacancy rate rose by 20 bps. Some 31 of 57 markets experienced an increase in vacancy in 2Q2010, down from 38 in the first quarter.

Markets with high-tech-oriented economies and more geographically dispersed suburban employment patterns continue to be among the best performers. Trenton, Austin and San Diego saw their vacancy rates decline by 130, 120 and 60 bps, respectively.

Also among the strongest performers in 2Q2010 were Fort Lauderdale, Tucson, and Orange County—markets that were among the last two years’ worst performers, due to their exposure to the residential real estate market.

The office vacancy rate, meanwhile, registered the eleventh consecutive quarterly increase after rising 10 bps to 16.7% at the end of 2Q2010, but it is the smallest incremental change in two-and-a-half years, it said.

Overall, the retail availability rate increased by 10 bps quarter-on-quarter to 13.2%, the research house said, adding that the positive year-over-year sales trend that began during the holiday shopping season of 2009 has continued through recent months. Improving retail sales has translated into stabilising availability rates in the second quarter.

“A second straight period of slowed decline in commercial property fundamentals and continued improvement in the apartments sector contributed to a better-than-expected quarter in commercial real estate," said Jon Southard, Director of Forecasting, CBRE Econometric Advisors (CBRE-EA).

For the residential sector, the vacancy rate for multi-housing properties fell for the second straight quarter by 60 bps, while the demand continued to strengthen faster than expected.

CBRE said the vacancy rate for the nationwide “same-store” sample of 3.4 million professionally managed apartment units came in at 6% in 2Q2010 – a drop of 140 bps from a year ago and 60 bps less than 1Q2010. Apartment market conditions, it added, have now improved for two consecutive quarters for the first time since early 2006.

Similar to the office sector, US industrial availability rate also marked the eleventh consecutive quarter of rising availability, when it increased 10 bps to 14.1% in 2Q2010.

The pace of the increase, however, has slowed noticeably compared to the quarterly 70- to 90-bps increases experienced in late-2008 and early-2009. Of the 61 reporting major markets, the industrial availability rate increased in 30, declined in 22, and remained unchanged in nine.