Commercial real estate markets are flattening out, with modestly improving fundamentals expected in 2011, according to the NATIONAL ASSOCIATION OF REALTORS®.

“The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out,” says Lawrence Yun, NAR's chief economist. “The outlook for the office and industrial markets has moderated with modestly declining vacancy rates expected as 2011 progresses, while the retail sector should hold fairly steady. Still, high vacancy rates imply falling rents.”

Yun anticipates a rise in household formation from an improving economy, which will increase demand for housing, both ownership and rental. “Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011,” he added.

“Apartment rents could rise by 1 to 2 percent in 2011, after having fallen in 2009 and no growth in 2010,” Yun said. “This rent rise therefore could start to force up broader consumer prices as well.” He noted that the housing shelter cost of primary rent, and owner’s rental equivalence, is the biggest component in the Consumer Price Index, accounting for 32 percent of its total weight.

The Society of Industrial and Office REALTORS®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 400 local market experts, shows vacancy rates are slowly improving, but rents continue to be soft with elevated levels of subleasing space on the market.

The SIOR index, measuring the impact of 10 variables, rose 1.6 percentage points to 42.6 in the third quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the fourth straight quarterly improvement following almost three years of decline.

Commercial real estate development continues at stagnant levels with little investment activity, but is beginning to pick up in many parts of the country. NAR’s
latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail, and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Markets
Vacancy rates in the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year. The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies around 9 percent. All other monitored markets have double-digit vacancy rates.

Annual office rent is expected to decline 1.8 percent this year, and then slip another 1.6 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 3.7 million square feet this year and then a positive 16.4 million in 2011.

Industrial Markets
Industrial vacancy rates are projected to decline from 13.9 percent currently to 13.2 percent in the closing quarter of 2011. At present, the areas with the lowest industrial vacancy rates are Los Angeles, Salt Lake City, and Kansas City, with vacancies in the 8 to 10 percent range.

Annual industrial rent is likely to fall 4.0 percent this year, and decline another 3.4 percent in 2011. Net absorption of industrial space in 58 markets tracked should be a negative 25.1 million square feet this year and a positive 134 million in 2011.

Retail Markets
Retail vacancy rates are expected to change little, declining from 13.1 percent in the fourth quarter of this year to 13 percent in the fourth quarter of 2011. Markets with the lowest retail vacancy rates currently include San Francisco; Orange County, Calif.; and Honolulu, with vacancies in the 7 to 8 percent range.

Average retail rent is seen to drop 3.4 percent in 2010 but largely stabilize next year, slipping 0.3 percent in 2011. Net absorption of retail space in 53 tracked markets is projected to be a negative 0.5 million square feet this year and then a positive 5.0 million in 2011.

Multifamily Markets
The apartment rental market — multifamily housing — is expected to get a boost from growth in household formation. Multifamily vacancy rates are forecast to decline from 6.4 percent in the current quarter to 5.8 percent in the fourth quarter of 2011. Areas with the lowest multifamily vacancy rates presently are San Jose, Calif.; Miami; Boston; and Portland, Ore., with vacancies in a range around 4 percent.

Average apartment rent is likely to rise 0.2 percent this year and another 1.4 percent in 2011. Multifamily net absorption should be 85,200 units in 59 tracked metro areas this year, and another 147,000 in 2011.

Source: NAR

http://www.realtor.org/RMODaily.nsf/pages/News2010112901?OpenDocument

Houses that will sit empty through the winter need attention to avoid frozen pipes, reports Long Island American Water, which is part of American Water, the largest investor-owned U.S. water and waste water utility company.

The company offers these tips for ensuring that pipes don’t burst:

· Search for pipes that are not insulated, or that pass through unheated spaces such as crawl spaces, basements, or garages. Wrap them with pre-molded foam rubber sleeves or fiberglass insulation.

· Wrap really vulnerable pipes with electric heating tape with a built-in thermostat that only turns heat on when needed.

· Seal cracks and holes in outside walls and foundations with caulking to keep cold wind from pipes. Look for areas where cable TV or phone lines enter the house, to be sure holes are tightly sealed.

· If hot-water radiators heat the home, bleed the valves by opening them slightly. Close them when water appears.

· Before really cold weather sets in, make certain that the water to outdoor hose bibs is shut off inside the house and the lines are drained.

· Drain any hoses and air conditioner pipes.

· Wrap the water heater or turn it off.

· Make sure gutters and downspouts have been cleaned to remove debris that could freeze and cause clogs during cold weather.

· Know where the main water shut-off valve is located in case it needs to be shut off during an emergency.

Source: Long Island American Water (11/16/2010) http://www.realtor.org/RMODaily.nsf/pages/News2010111706?OpenDocument

For over a year now Market Watch has focused on statistical information.  I will continue to provide that sort of information on a regular basis.  This month, however, I will step back and take a “big picture” look at the housing market, long term trends, and general advice I would give to prospective homebuyers or sellers.
     Anyone who reads or listens to the media knows that everybody likes to talk about housing and most of them think they are “experts”.  Sensational headlines appear almost weekly and, in my opinion, are not as important as the size of the print.  In other words, one week’s statistical anomaly does not necessarily mean the housing market has changed significantly.  Homeownership is not a get rich quick scheme.  Homeownership works because there are several significant long term benefits.  I believe housing statistics are much more meaningful when viewed on a longer term basis.
     Residential housing has been one of the pillars of the American economy for decades, accounting for about 17% of our economy.  Clearly the housing market is not as strong as it was 3-4 years ago.  It is also true that there are more homes on the market today than has historically been the case. Part of the problem was caused by investors treating residential real estate as a short term investment.  In addition, there are some existing lending and related securities issues that have hurt the housing market.                                  
     All of those things being said, there are several overriding positive aspects of the housing industry that have not changed.  First, housing has long been a hedge against inflation and has historically grown fairly steadily in value.  Second, taking out a mortgage to buy a home essentially serves as a “savings account”.  Paying down a loan is, in many ways, the same as saving money.  Third, housing has significant tax advantages based on the deductibility of both mortgage interest and real estate taxes.  Finally, there are several reasons that housing’s current problems will lessen.  Over the past several years household formation has decreased while population has increased.  This trend is impossible to sustain.  Currently, America’s population increases by one million annually.  Even with this consistent growth there are 2.5 million fewer homeowners that there were in 2004.  When our economy improves, our unemployment rate declines, and foreclosures lessen there will be a significant resurgence in home buying.  When compared to renters, homeowners make more money, are better educated, are healthier, pay more taxes, and donate more to charities.
     The American dream of homeownership has not decreased.  The current rate of homeownership in the U.S. is 66.9%.  Even in today’s market 77% of American’s believe now is a good time to buy a home.  Homeownership has historically, and will continue to be a sound long term investment.  Buyers who sit on the sideline today will have missed a golden opportunity.

Please feel free to call or email me at 812-499-9234 if you have any questions.

Consumer confidence and business spending are key to whether the U.S. housing market will move into a virtuous or a vicious cycle in 2011, NAR Chief Economist Lawrence Yun told a packed audience at the Residential Economic Outlook Forum Friday in New Orleans.

After the downturn, the housing market has clawed its way back to a point of near stability, Yun said, with the pace of new foreclosures easing, sales moving toward historically normal levels and prices on a national basis gaining modestly.

At the same time, affordability remains strong. He said all of the price excesses from the housing bubble have been squeezed out. In San Diego, for example, buyers today would pay $1,564 a month in mortgage payments for a house that at the height of the boom would have cost them $2,833 a month.

The broader economy is also showing positive signs, with businesses enjoying strong profits, sitting on huge cash reserves, and even adding jobs. Yun predicts this positive trend to continue into 2011, with existing home sales reaching 5.5 million units, prices rising a modest 1 percent, and the U.S. gross domestic product increasing to about 2.5 percent.

“We are entering a virtuous cycle,” he said. But for the positive trend to continue, he added, businesses will have to start spending some of their cash to fuel job growth at a far greater pace than they’re doing now. Currently, businesses are adding jobs at a pace of about 100,000 a month. That needs to grow to about 400,000 a month for unemployment
to start shrinking.

The scenario will be far more negative if businesses continue to sit on their cash. In that case, sales will fall, inventories will rise, the high rate of foreclosures will resume, and the cost to the federal government of bailing out Fannie Mae and Freddie Mac will surge.

Federal Reserve Governor Thomas Koenig, who shared the data with Yun, said the Fed’s continued effort to spur the economy, most recently through a $600 billion bond buying program, is understandable given concerns over the slow pace of growth. But the continued subsidization of the market could unleash inflationary forces.

Yun said he sees possible evidence of inflation building, but it’s not visible now because the housing-cost portion of inflation measurements is holding down prices.

—Rob Freedman, REALTOR® Magazine

http://www.realtor.org/RMODaily.nsf/pages/News2010110801?OpenDocument

Property tax caps made their way into the state Constitution Tuesday evening with strong support from Indiana voters (71.6%), cementing the reform package approved in 2008 and bringing certainty to local real estate markets, not to mention paving the way for progress on other important issues.  Thank you, members, for your help this fall bringing attention to the ballot question and bumping up its support within the last week from 65% to 72%