US commercial property enjoys a solid Q2

US commercial property enjoys a solid Q2

US commercial property registered strong results in the second quarter of the year, with all sectors experiencing solid demand. Highlights in this type of real estate were apartments whose construction reached record levels, vacancy rates continued below 6% and rentals increased by 9.7%.

Apartment best performing sector

The latest report from NAREIT on the US commercial property market showed that the apartment sector registered the best performances between April and June this year. Rental apartments experienced strong fundamentals across the board as demand puts pressure on the sector.

Vacancy rates

In Q2, the vacancy rates for apartments stood at 5.1%, slightly higher than in Q1 but still below the historic average and in line with the last four quarters. Vacancies have not risen above 6% since Q2 2021 and their current rate is one of the lowest since 2001.

Rental rates

Apartment rentals in the US have seen unprecedented growth over the last 18 months and frequently registered double-digit increases every month. However, the second quarter saw a slowdown and a slight moderation. Even so, monthly rates for apartments still rose by 9.7% in the three months.

As the chart below illustrates, rental rates for apartments and industrial property currently lie well ahead of those for retail and office real estate.

chart showing rental rate rises for US commercial property in Q2 2022

Construction rates

New apartment building work accelerated across the US during Q2 this year and reached near record levels. Measured as a percentage of existing stock, apartment construction was 4.6%, double the average seen at the height of the last property cycle.

Industrial also strong with US commercial property

Industrial commercial property also experienced a solid second quarter, with the sector suffering from a supply shortage. In terms of vacancy, the number of available industrial properties fell to an all-time low of 3.9%. After a slight uptick at the beginning of the pandemic, the industrial sector is currently, according to NAREIT, “performing better than ever”.

The record low vacancy rate is mirrored in the continued surge of industrial construction since the pandemic. New facilities and infrastructure equalled 3.6% of existing stock in Q2, the highest level ever.

Rents for industrial real estate also rose between April and June. The 3.1% uptick over the three months brought the annual increase to 12.3%, taking rents to a historic high.

Solid fundamentals

The latest figures for US commercial property “reflect an ongoing healthy demand for commercial real estate across most sectors,” says NAREIT. The association reiterates the solid fundamentals despite concerns about a slowing economy.

(Source: NAREIT)