Vacancy Rates and the Economy
Commercial real estate can reflect the economic health of a region. For example, the 2008 recession greatly increased commercial office building vacancy rates. Rental rates fell while vacancies rose dramatically. When the nation came out of the recession, vacancy rates decreased while rents increased. (Source: UOP CBPR Index). That is why it's important to analyze trends in commercial real estate as we discuss the regional economy. It is a key indicator in knowing the economic 'pulse' of an area. Graphs below examine real estate trends across San Joaquin County and Stanislaus County.
Vacancy rates have fallen in each quarter since Q3 2013, reaching only 7.8% in Q3 2016. This reflects the commercial market’s continued economic recovery. (Source: UOP CBPR Index & Costar reports)
Unlike vacancy rates, rental rates have fluctuated since 2013 and have decreased 1.1% since Q1 2012. Rental rates are more sensitive to changing market conditions and economic outlook. Property managers most likely decrease rent to avoid vacancy, which might explain temporary rental price declines while vacancy rates also declined since 2013. (Source: UOP CBPR Index & Costar reports)
Unlike office and industrial rates, retail rental rates decreased between 2012 and 2015. When cities plan new residential development, retail buildings likely follow more so than other commercial real estate. Retail building stock upticks could contribute to rental prices. (Source: UOP CBPR Index & Costar reports)
Of the three building types (office, industrial, retail) retail vacancy rates were most constant, although they have decreased 1.5% since 2012. (Source: UOP CBPR Index & Costar reports)