Commercial Real Estate Vacancy Rates Improving

Will improving vacancy rates generate improving valuation trends as well as lower cap rates as we move forward into 2013?

CRE vacancy rates remained high through June of 2012 but improved for all types of commercial property(see figure 4). Private sector forecasts call for continued improvement but at a slow pace given expectations for weak economic growth. Low interest rates have helped CRE borrowers, but many borrowers may find it difficult to refinance in the near term because of elevated loan-to-value ratios. Small banks in general have higher CRE concentrations and are therefore more vulnerable to declines in this asset class.

Figure 4: CRE Vacancy Rates

 

OCC’s Semiannual Risk Perspective, Fall 2012