The national vacancy rate plunged 20 basis points this period, ending the quarter at 4.0%. Much like most sectors of the economy, the sector was severely bludgeoned by the recession, with vacancies breaking Reis’s three decade high in late 2009 as levels peaked at 8.0%. That historic level has now been cut by half, and is a full 140 basis points below the long-term average of 5.4%.
Rents are continuing to increase, but at a relatively subdued pace given how low vacancies have gotten. Asking and effective rents grew by 0.5% and 0.6%, respectively, during the first quarter. These represent a slight slowdown relative to the previous quarter, and are the weakest rent growth figures since the first quarter of 2013. On a year over year basis, asking rents grew by 3.1% and effective rents grew by 3.3%.
The national vacancy rate fell to 16.8%, a 10 basis point decline over the first quarter. This is in line with trends over the last three and a half years. Vacancies peaked at 17.6% in late 2010, and since then any recorded declines were no larger than 10 basis points. It has certainly been a slow recovery, but quite in line with expectations, given an economy that has been growing at an average of 2% per year since the recession ended in June 2009.
Asking and effective rents grew by 0.7% and 0.8%, respectively, during the first quarter. While these increases appear minimal, rent growth over the past three years shows an improving trend. Rents have now risen for fourteen consecutive quarters; asking rents grew by 1.6% during 2011, 1.8% over 2012, and 2.1% in 2013. Landlords appear to have little leverage over tenants, with concession packages being pulled back very slowly—effective rent growth is not much faster than asking rent growth. As demand for office space accelerates this year, we should expect concessions to decline, with effective rent growth outpacing asking rent growth.
The national vacancy rate for neighborhood and community shopping centers was unchanged during the first quarter at 10.4%. Though this marks a breather from improvements in occupancies, it is on par with the grindingly slow pace of recovery: vacancies have either stayed flat or fallen by only 10 basis points in each of the last ten quarters. The national vacancy rate is only 70 basis points below the historical peak
vacancy rate of 11.1%, which the sector hit in late 2011.
Asking and effective rents grew by 0.4% and 0.5%, respectively, this quarter. Although on par with growth rates from last quarter, rent growth nonetheless remains slightly below growth rates from early to mid-2007 before the onset of the recession. Year-over-year rent growth continues to trend upward with asking and effective rents growing by 1.5% and 1.6%, respectively. This is a slight improvement from last quarter when asking and effective rents both grew by 1.4% on a year-over-year basis, providing more evidence of the ongoing recovery in the retail market.
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