Real estate stocks that had lost value over the last few months now are in the black for the year, while the fundamentals are generally looking up for the third and fourth quarters. Yet the sector continues to lag behind other industries in terms of stock price multiples of all stripes. New data suggests, however, that we may see a quickly recovering commercial real estate market. Vacancy rates should remain generally low, while rent increases will be modest compared to the overall rate of inflation. The double-digit rent hikes we observed in a number of major markets will not be repeated in 2001, given generally weaker economic conditions.
Some markets are still hot.
In the office space sector, Boston, Austin, San Jose, San Diego and Orange County, Calif., should see relatively high growth rates, according to the NAR's first-quarter research. Note that while these areas have been hardest-hit by layoffs at small tech firms, they still are hotbeds of new technology development and investment. And while vacancy rates will rise, they may not look much worse than anything seen over the last couple of years. Last year's vacancy rate in 54 major markets was 9.9 percent for the year. In 1999, it was 10.3 percent.