The credit crunch continues to filter into the commercial real estate market, which is seeing a "pronounced" effect not from lack of demand, but from challenges of obtaining credit, according to Wednesday's National Association of Realtors (NAR) Commercial Real Estate Outlook, a quarterly look at data in the office, industrial, retail and multi-family markets.

"Although capital remains available for residential loans, the credit crunch is pronounced in commercial lending. Combined with a slowing economy, the lack of credit is curtailing activity in the commercial real estate sectors," said NAR chief economist Lawrence Yun. "As a result, there's been a slowdown in the net absorption of space, which is leading to higher vacancies and more modest rent growth."

Patricia Nooney, chair of the Realtors Commercial Alliance Committee, said, "We're in an unusual situation where transactions are being curtailed not for lack of demand, but for serious challenges in obtaining financing."

Looking at the office market, vacancy rates are expected to increase to 14.4% in Q2 2009, up from 12.9% in Q2 this year. The NAR said annual rent growth in the office sector should be 3.2% this year before contracting 0.4% in 2009.



Net absorption of office space in the 57 markets surveyed is projected at 14.7 million square feet this year and 10.9 million in 2009, down sharply from 57.3 million square feet last year.

In the industrial market, the economic slowdown has curtailed warehouse demand. But Yun noted that exports have helped the industrial sector hold up relatively well.

Vacancy rates in the industrial sector are likely to rise to 10.8% in Q2 2009, up from 9.9% in Q2 this year, the NAR reported. Annual rent growth is forecast at 1.1% this year and 1.0% in 2009.

Net absorption of industrial space in the 58 markets surveyed will probably total a negative 16.7 million square feet this year and then rise to 35.3 million in 2009, compared to 120.3 million last year. "A pattern of building to suit specific needs continues, with many obsolete structures remaining on the market," the report said.

In the retail market, food and energy costs squeezed retail spending. "Sluggish consumer spending over the next 12 to 18 months will force retail rent growth to turn negative in 2009," Yun said.

The retail sector is expected to see vacancy rates rise to 10.4% in Q2 2009, up from 9.7% in Q2 of this year. Average retail rent is estimated to grow 1.2% in 2008 and then decline by 0.9% in 2009.

Net absorption of retail space in the 53 tracked markets should shrink by 2.6 million square feet this year before rising 2.8 million in 2009, down from the 11.1 million absorbed last year.

In the multi-family or apartment market, rents are expected to rise at a "respectable pace." The NAR forecasts rates to rise to 5.9% in Q2 2009, up from 5.4% in Q2 2008.

Multi-family net absorption is forecast at 61,400 units in 59 tracked metro areas this year and 188,200 in 2009, compared to 234,400 last year.

By Patrick McGee and edited by Sarah Sussman
©CEP News Ltd. 2008