NAR chief economist Lawrence Yun has revealed data hinting at a cooling off of the red hot office rental market thanks to a boom in new constructions.
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“This sector has been the industry’s top performer over the past several years as a result of younger households struggling to become homeowners and the demand for apartments far exceeding supply in many markets,” Yun noted in the NAR’s latest quarterly Commercial Real Estate Outlook forecast.
The NAR predicts that both occupancy and rents will continue to rise throughout 2016, but property prices will begin to decline if, as expected, the Federal Reserve raises interest rates. That will encourage investors to keep pushing money into the sector, Yun said.
“Rising sales and investor optimism in recent years has pushed prices past their peak in many of the larger commercial markets,” says Yun. “Investors — especially those abroad — looking for better yields will likely seek to invest their larger sums of cash in smaller markets and into lower-end properties.”
Overall, the short-term future of the commercial real estate sector looks promising, and growth should continue throughout 2016, Yun added. He noted that so-called “temporary turbulence” in the US economy due to economic weakness overseas should soon abate, fueling the appetite for more real estate investments.
According to Yun, we should soon see a decrease in vacany rates, leading to higher rents in the healthiest labor markets.
The NAR predicts national office vacancy rates will fall by 0.8 percent to 14.8 percent in 2016.