U.S. Office and Industrial Vacancy Rates Continued to Drop in Q4 2010
Bear still dominates, but bulls showing improvement
Edited by: Lisa Benson Source: CB Richard Ellis with comments on market sectors by Ben Boothe (http://www.benboothe.com)
The national vacancy and availability rates in the U.S. office and industrial markets, continued to decline in the fourth quarter (Q4) of 2010, according to the latest analysis from CBRE Econometric Advisers (CBRE-EA). In Q4, the national office vacancy rate fell by 20 basis points (bps) to16.4%, the second consecutive quarterly decline. The national industrial availability1 rate decreased by 30 basis points in Q4 to 14.3%, marking the second consecutive decrease in availability and providing further proof that the industrial sector continues to heal.
In retail, the overall availability rate remained at 13.0% in Q4 —unchanged compared with the previous quarter. The vacancy rate for the nationwide same-store sample of 3.6 million professionally-managed apartment units came in at 6% in Q4.
"The breadth and consistency of improvements are exactly what has been hoped for by those looking for a signal that the corner has been turned," said Jon Southard, Director of Forecasting, CBRE-EA. "However, to put this information in context, with the exception of multi-housing, several additional quarters of this pace of improvement will be necessary to bring vacancy rates back to historic norms"
CBRE-EA’s Q4 2010 analysis found that, as with previous, recent quarters, suburban office markets continue to outperform downtown areas; the suburban vacancy rate declined by 30 bps, while the downtown vacancy rate declined by 20 bps. This is the first decline for downtown submarkets since the third quarter of 2007. The office market generally continued to make strides toward recovery in Q4. Improved leasing velocity and a depleted construction pipeline has helped push the office vacancy rate down from its cyclical peak reached during the second quarter of 2010.
Vacancy rates declined in 30 of the 57 markets tracked during Q4, with 10 remaining unchanged and 17 experiencing vacancy increases. Florida markets, having been severely affected by the housing slowdown in 2008 and 2009, have recently been showing signs of stabilization as their economies start to recover. They were among the best performers in Q4 2010, as vacancy rates declined by 60 bps in Tampa and Orlando and by 130 bps in Jacksonville. Energy and other resource-driven markets of Texas were also among the top performers, as Houston and Fort Worth had their vacancy rates fall by 80 and 50 bps, respectively.
Q4 continued to bring improvement to the industrial market with reported declines in availability rates as widespread as they have been at any point in recent memory. Although availability rates remain near record highs, suggesting there is still much slack to be worked off within the sector, low construction and an improving economy should continue to lower availability moving forward. During Q4 2010, 39 markets reported falling availability rates, four saw no change, while the remaining 15 reported increases.
In retail, the holiday shopping season trends were positive even though not significantly evident in increased shopping center occupancy. Year-over-year growth in core retail sales has been steadily improving since May and growth was above 6% as of November—a good indicator that the consumer recovery is sustainable. With the exception of ten markets, retail markets are generally recording double-digit availability rates. San Francisco, New York City, Oakland, Long Island and Miami are among those maintaining the lowest (and single-digit) availability rates. Twenty markets saw improvement in availability rates compared to last quarter (another six were flat); of these, eight also recorded declines compared to one year ago (Columbus, Boston, Long Island, Atlanta, Oakland, Miami, Baltimore and Washington DC).
Preliminary data indicates that the pace of the U.S. apartment recovery remains strong. The national vacancy rate usually increases by about 80 bps in the seasonally weak fourth quarter, yet it only increased by 20 bps in Q4 2010, marking one of the strongest year-end performances on record. For the year as a whole, the national vacancy rate declined by 130 bps from an average of 7.4% in 2009 to 6.1% in 2010, while growth in apartment demand has accelerated from 108,000 to 258,000 units. Across markets, vacancy rates are quickly approaching their historical norms.
Our thanks to Lisa Bentson and CB Ellis for their good reporting.
We would like to add the following observations on market sectors:
We are impressed with the continued hold on the imagination that Apple, Google, and Starbucks demonstrate. Apple stores have "lines and take a number" systems they are so buried with customers.
While traditional news media, traditional retailing, traditional marketing in every sector is slow, those that have innovated with technology are showing good results.
We still see towns riddled with vacant retail buildings and vacant commercial spaces, yet, some new expansion by young and imaginative entrepreneurs are appearing.
Food production, medical field, high technology, insurance all appear to do well.
Real estate innovators that have integrated high tech and energy efficient solar and wind applications have had excellent market response, where traditional real estate is still slow and suffering.
It all points to a time where new technology is driving market demand. For example some media and news outlets have put in new, attractive smooth working high tech operations and their readership is growing. Others have put in clunky "Internet news sites" and it has only been a drag on earnings for them.
Social media continues to expand and this is a test of imagination and progressive thinking to find ways to make this profitable and a source of cash flow.
We are pleased to see farmers finally making a profit because of high food and fiber prices and note that as oil increases in price, food and fiber will increase even higher.
The subject of water is a new and broad one, but we will in brief say that water will emerge as a huge value item and the water industry will boom, with new water systems and sources. Our work in combining desalination with wind and solar energy is to be a gold mine for future expansion. (see articles in: http://www.bootheglobalperspectives.com)
Automotive sales are increasing fastest in units that have high technology, GPS, and internet built in. New electric cars show good potential with good market response. Older more traditional lines are slow.
Industrial areas that have utilized "roof top solar" and high tech energy efficiency have shown good market appeal.
Banking sector is still a mixed bag, with local banks providing loans and service and the 5 giant franchises of banking in trouble with layers of reports of problems and possible insolvency. Many experts predict that at least two of the biggest bank franchises in the USA will be nationalised or will be sold off piece meal.
In every sector, those who have applied high technology to their areas have seen good market acceptance. Traditional approaches have seen slow and lackluster market response.