All sectors of the property leasing market are recovering, some more quickly than others. Third quarter vacancy rates fell by 30 basis points for the office and apartment sectors and by 10 bps for the industrial and retail sectors. The apartment market has been recovering rapidly since mid-2010 thanks to the unresolved foreclosure crisis, tight mortgage lending standards and the tarnished reputation of homeownership.
The office vacancy decline is a surprise considering that job creation remains sluggish and shadow space is still a problem. Industrial demand has been strong enough to trigger new construction starts, and the market continues to plough ahead despite manufacturing conditions that have softened since the spring. Retail has been the most sluggish of the major property types due to the well-documented headwinds facing consumers, but certain sub-types are outperforming, notably anchored centers and fortress malls in mature, high-income trade areas. Although vacancy rates are declining, landlords still do not have much pricing power since the market recovery remains in the early innings with the exception of apartments. Expect the recovery to continue at an uneven pace as the economy struggles to stay out of recession.