The national leasing market continued to roll in the third quarter according to preliminary data compiled by Newmark Grubb Knight Frank.
The leasing market recovery, like the economic recovery, is not as vigorous as previous recovery cycles (with the exception of apartments). But quarter after quarter, the markets continue to tighten, putting more landlords in the black and bringing more investors to the table.
- The office vacancy rate ended the third quarter at 15.6%, down from 15.7% in the second quarter and 16.2% in the year-ago quarter. Absorption of 12.1 million square feet bested completions of 3.8 million square feet last quarter. The average asking rent rose to $21.58/sf full service gross, up 1.3% for the quarter and 3.1% over the past year. Credit year-to-date job creation totaling 1.3 million, of which 400,000 are in the office-using sectors of information, financial activities, and professional and business services. Wild card: Hiring activity – and demand for office space – could get a boost early next year post-election assuming Congress acts to mitigate the fiscal cliff.
- The industrial vacancy rate also moved lower, ending the quarter at 8.5% – down from 8.7% in the second quarter and 9.2% in the third quarter of 2011 – helped by solid Q3 absorption totaling nearly 29 million square feet. The average asking rent ended the quarter at $4.67/sf triple net after four consecutive quarters stuck at $4.61/sf. Manufacturers pulled back in the third quarter, and freight shipments have leveled off. But the lack of new construction activity – completions totaled just 5 million square feet for the quarter – helped demand flow through to existing properties. Wild card: Continued turmoil in the eurozone and shaky growth forecasts in emerging markets could restrain demand for distribution centers next year.
- The retail vacancy rate has leveled off at 7.0% for the past three quarters according to CoStar, and the average asking rent has yet to find a bottom. Perhaps more than any other property type, retail is a story of the haves and have-nots. The haves are the fortress malls and anchored centers in strong trade areas, and the have-nots are empty boxes and unanchored strip centers in marginal trade areas. Wild card: The housing market is moving off the bottom, fairly briskly in some markets, which will support retail sales.
- And finally, apartments continue to burn up the track with vacancy falling to 4.6% and the average asking rent rising again by 0.8% to the highest level ever recorded by Reis. This story line has been in place for several years, but it could be changing on two fronts. Wild card: Apartment construction is picking up dramatically in some markets and submarkets, and the for-sale housing market is looking better. The idea of a permanent shift in favor of renting could evaporate as people begin to comprehend that the housing recovery is the real thing this time.