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CBRE Group, Inc. Sees U.S. Commercial Real Estate Market Recovery Continuing In The First Quarter Of 2013

Los Angeles, April 8, 2013 – The U.S. commercial real estate market continued to recover gradually in the first quarter of 2013 (Q1 2013), according to the latest analysis from CBRE Group, Inc.

  • The office vacancy rate fell by 10 basis points as the nation’s office markets generally withstood an uneven economic recovery as well as the Federal budget “sequester1”. Office vacancy has now declined for 11 consecutive quarters and stands at 15.3%, its lowest level since the first quarter of 2009.
  • National industrial availability2 decreased by 50 bps to 12.3% in Q1 2013, the largest quarterly drop since the industrial sector recovery began in 2010.
  • The retail availability rate was12.5% in Q1 2013, dropping 30 bps from the previous quarter – the biggest decline in several years.
  • Demand for the nation’s apartment buildings continued to be strong with vacancy in Q1 2013 at 5.1%.

“Retail locations and warehouse buildings had their best quarter in terms of vacancy/ availability declines in several years as a result of a more confident consumer.  Higher spending on consumer goods led to improved occupancy in both property types,” said Jon Southard, Managing Director of CBRE’s Econometric Advisors group. “Recovery also remained on track in multifamily and office, although demand did not dramatically outpace new supply during the quarter in either of these sectors.”

Office Market

Q1 2013’s office vacancy rate of 15.3% was 70 bps below last year’s first quarter vacancy rate.  In the first three months of this year, suburban markets continued to outpace their downtown brethren. Suburban vacancy fell by 10 bps to 17%, while the downtown rate remained unchanged at 12.4%.

Local market performance was mixed with falling vacancy in half of the markets tracked (31 of 63). The best performers in the first quarter were smaller markets; Austin and Las Vegas led all markets with vacancy rate declines of 120 bps each. While Austin has been one of the strongest performers throughout this recovery (due to its high-tech and business services sectors), the Las Vegas office market has only recently begun to rebound from the housing bust. Even with the 120-bps decline in Q1, Las Vegas’s office vacancy rate is at 24.6%—more than 1,700 bps above its pre-recession low. Also among the top performers in Q1 were Portland, Orange County, San Antonio and Indianapolis, each of which saw vacancy rates fall by at least 90 bps. Most gateway markets (which include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.) struggled in the first quarter. Leasing trends softened in these markets amid heightened uncertainty surrounding the impact of federal sequestration combined with tepid economic growth through the end of 2012. Among gateways, Chicago was the only one with a vacancy decline (-10 bps) in Q1 2013.

“Private-sector hiring has been solid, as companies have largely shrugged off government spending cuts,” said Mr. Southard. “However, due to the sequester we expect further cutbacks in federal and state spending in the coming quarters. These cuts will likely only slow total employment growth—not stop it. As a result, office occupancy should continue to improve for the remainder of 2013, albeit at a slower pace than last year.”

Industrial Market

Over the past two years, the industrial market has seen a slow but steady recovery, and the Q1 2013 availability rate of 12.3% is now 230 bps below its recessionary peak. The recovery continues to be broadly based, with 48 markets posting declines, seven showing increases, and five unchanged from a quarter ago.

Some of the nation’s manufacturing markets, specifically those with heavy exposure to the nation’s resurgent auto industry, led the industrial recovery during Q1, with Detroit (-150 bps) and Cincinnati (-110 bps) particular standouts. In total, availability declined 100 bps or more in 10 markets, including Boston, Chicago, Raleigh and Trenton. Among other larger markets, availability in Minneapolis fell 50 bps; Cleveland, Dallas, and Houston were each down 40 bps, and Atlanta decreased 20 bps. Los Angeles was unchanged for the second quarter in a row.

Retail Market

The Q1 2013 availability decline of 30 bps, to12.5%, was the largest since 2005, and supports increasing optimism about the staying power of the retail recovery.  Availability declined or held constant from the previous quarter in a majority of retail markets. Notably strong performers included Richmond, Charlotte, Cleveland, Memphis and Phoenix; each recorded a decline of 60 bps or more. On the other end of the spectrum, Tampa, Fort Lauderdale and Birmingham saw availability rate increases of 30 bps or more in Q1. Markets such as Tampa and Fort Lauderdale are still feeling the effects of the housing crisis (which is causing retail availability rates to increase) and retail centers in markets such as Cleveland, Cincinnati and Columbus are benefiting (translating into strong demand and thus declining availability rates) from above-average employment growth. 

Consumers continued to spend during the first two months of 2013, following a 2012 holiday shopping season that was healthy although slower than the previous year’s.  Core retail sales growth is still below historic bounds, indicating that consumers remain cautious about the economy and about overspending. In light of this, retailers will guard against expanding too quickly and the growth of retail demand will continue at a more muted pace than in previous retail recoveries.  

Apartment Market

The vacancy rate for professionally-managed apartment units stood at 5.1% in the first quarter of 2013, unchanged from a year ago.  This is the first time since 2009 that national vacancy did not decline from a year ago and a third of the markets posted vacancy increases of 50 bps or greater on a year-over-year basis.  Despite the slower growth in demand, the market remains tight by historical standards, with the four-quarter trailing average staying at 4.9%, or 40 bps below the long-term (20-year) norm.

Compared to a year ago, vacancy rates declined in 23 of the 63 markets monitored.  Markets with the biggest year-over-year declines in vacancy (more than 50 bps) included Orlando, Atlanta, Cleveland, Albuquerque, Cincinnati, Phoenix, Charlotte, Miami, and West Palm Beach.  Those with the largest year-over-year increases in vacancy (more than 100 bps) included Greensboro, Las Vegas, Columbus, Pittsburgh, St. Louis, Indianapolis, Tucson, Dayton, and El Paso.  Markets with the lowest vacancy rates (at or below 3.5%)) included Minneapolis, Salt Lake City, Newark, Pittsburgh, Miami, Cleveland, Edison, Providence, Hartford, Oakland, and Boston.  Markets with the highest vacancy rates (at or above 7.5%) included St. Louis, Indianapolis, Atlanta, Greensboro, El Paso, Jacksonville, Tucson, Las Vegas, and Memphis.

With occupancy staying slightly below the historical norm, effective rent growth should remain healthy in 2013 as the economy takes further steps toward recovery.  With effective rents now well above their pre-recession levels in most major markets, new apartment construction picked up in recent months and completions are bound to return to historical norms towards the year’s end.  This will temper rent growth, slow the pace of declines in vacancy and in many markets, will contribute to rising vacancy rates in the near term. 

1 “Sequester” refers to the automatic, across-the-board spending cuts in Federal spending which became effective in March, 2013.

2 Availability is space that is actively being marketed and available for tenant build-out within 12 months. 

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue).  The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at

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