Tenants Retain Advantage in Improving Market—For Now

March 31, 2012
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The latest Commercial Real Estate Market Survey from the National Association of Realtors (NAR) shows positive improvement for owners as vacancy rates decrease across all commercial real estate sectors. But while NAR analysts predict vacancy rates will continue to shrink in 2012, most likely leading to better market performance, there hasn't yet—and may not for a while—be a significant decrease in the majority of office and industrial tenants' concessions and rent discounts.

New York City; Minneapolis; Portland, Ore.; and San Jose, Calif., tenants are already feeling a CRE uptick. The NAR CRE report predicts that an owner's market could be quickly approaching, commanding bigger rent increases for tenants that have enjoyed some leverage with rents and concessions since the downturn in the market. NAR chief economist Lawrence Yun credited sustained job creation with tenants' increasing demand for space. He noted that falling vacancy rates are strengthening rents. NAR forecasts commercial vacancy rates over the next year to decline 0.4 percent in the office sector, 0.8 percent in industrial real estate, and 0.9 percent in the retail sector.

The Society of Industrial and Office Realtors reports that, in the meantime, office and industrial space remains a tenant's market, with 87 percent of survey participants feeling that tenants are getting benefits ranging from moderate concessions to deep rent discounts.