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U.S. Commercial Property Remains Attractive Into 2008, Says NAR

10:09 12/19 (CEP News) Washington – Despite the impact of the credit crunch in recent months, 2007 was a record year for commercial real estate, and current conditions are "essentially sound," according to the Commercial Real Estate Outlook report from the National Association of Realtors.

Recent credit restrictions have slowed overall investment activity, the report said, but a record $325.0 billion was invested in commercial real estate in the first 10 months of 2007, higher than the $306.8 billion for all of 2006.

However, vacancy rates have increased and are expected to continue increasing in 2008.

"Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit," said Lawrence Yun, chief economist at NAR.

"As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains," he said. "Vacancy rates in the retail and multi-family sectors are projected to tighten in 2008 with rents rising in all sectors."

Patricia Nooney, chair of the Realtors Commercial Alliance, said, "Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business.”

She added, "There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors."

The report said with jobs still being created, the demand for office space remains positive. However, as office spaces expand, vacancies are forecast to rise to 13.2% in the fourth quarter of 2008, up from an estimated 12.9% in the current quarter.

Office building transaction volume was $173.5 billion in the first 10 months of 2007, higher than the $133.5 billion for all of 2006.

Foreign investors have poured $12.5 billion into office properties so far, with half of those buyers coming from Germany and the Middle East.

By Patrick McGee, [email protected], edited by Nancy Girgis, [email protected]