While the overall commercial sector appears to be improving, Yun said this isn’t the case in all levels of the commercial market. “Realtors involved in commercial real estate have reported they’re still seeing little improvement,” said Yun. “Commercial members typically handle smaller transactions, properties under $1 million; this part of the market is moving incrementally. At the opposite end, expensive properties priced above $2 million are doing much better. What we’re seeing is two very distinct markets within the commercial sector.”
The apartment sector continues to perform better than other sectors in commercial real estate with increasing prices and decreasing vacancy rates. Yun predicts the rental population will continue to rise over the next five years because of an increase in household formation.
The office market has also turned positive. Office vacancy rates are decreasing, and rents have recently turned the corner into positive territory. While companies are hiring more people, office space isn’t increasing. This might be due to employees sharing office space; however, Yun predicts the trend can’t continue. As hiring increases, net absorption will increase along with it.
The retail sector has had a modest increase in rents and slight decrease in vacancy rates. Yun says retail spending is determined by consumer confidence, which is in turn determined by housing prices. As housing prices increase, Yun predicts retail spending will improve.
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