While specific rates can vary from city to city, overall, the nation’s commercial vacancy rates are expected to be 12.3% this year, which is on par with 2022, according to the 2023 Commercial Real Estate Forecast. Vacancy levels could increase in certain sectors depending on economic factors such as inflation and high interest rates.
Multi-family and industrial properties are performing better than others and are expected to continue to do so, according to JP Morgan Chase. Multi-family vacancies were at a 4.4% low in the third quarter of 2022, while office space is still recovering from 2019 pre-pandemic vacancy levels, depending on where in the country. The shift to remote work, for example, is still impacting the tech industry on the West Coast, according to Moody’s Analytics.
In examining vacancy levels in the commercial real estate sector, Rutgers University found that urban population decline, suburbanization, the rise of e-commerce, and speculative investment were also contributing factors. In some cases (depending on the city), property owners will under-utilize their property to reduce property tax liabilities. For instance, an owner may rent out the first floor of a commercial building and leave the top floors vacant.
To address the vacant commercial issue, Rutgers looked at several “non-tax” policies that municipalities could implement to incentivize owners to get tenants. These include vacant property registrations, tax breaks, code enforcement policies, land banks, improved case law in tax courts, lower capitalization rates, and improved tax court judge training. Trenton, New Jersey, for example, passed a vacant property registration ordinance requiring all owners of vacant commercial property to register with the city and pay an increased annual fee.
Securing Vacant Property
While property remains vacant or unoccupied, owners must protect their investments. According to the IAAI/USFA Abandoned Building Project, of the more than 12,000 fires in vacant structures yearly, about 72% are incendiary or suspicious. Copper piping and other valuable fixtures in vacant buildings are a target for looters and vandals. Vacant buildings also attract the homeless. Owners can do a lot to minimize risk and deter criminal activity on their vacant business property. This includes securing all access points (windows, doors); re-keying all locks; installing smart locks, cameras, and motion sensors; registering the security system with local authorities; using
moisture sensors for monitoring leaks and floods; checking in with neighbors; outsourcing landscaping and snowplowing; visiting the property regularly; and maintaining building temperature and fire suppression systems, among many other measures.
Visit Seneca Insurance Companies’ Resource page for additional vacant property risk-mitigation measures to share with clients.