A record $257 billion was invested in commercial real estate in the first seven months of 2007, up from $146.7 billion in the same period in 2006 – that total does not include transactions valued at less than $5 million, or of investments in the hospitality sector.

The office sector is the most favored by investors, with strong rent growth this year.  The cost of steel and other factors have helped minimize speculative construction in most markets.  The demand for space is expected to remain strong into 2008, and areas with strong job growth are benefiting the most.

The vacancy rate is expected to edge up to an average of 12.9 percent in the fourth quarter from 12.5 percent in the fourth quarter of 2006, and then dip to 12.4 percent by the end of 2008.  Projections for the third quarter show areas with the lowest office vacancies to include Ventura County, California and Los Angeles, all with a vacancy rate of 9.4 percent or less.

Annual rent growth is forecast at 6.1 percent in 2007 and 3.1 percent next year, after rising 5.2 percent in 2006.

The main driver for the industrial market continues to be the need for warehouse and distribution space, particularly in ports and distribution hubs, the rebirth of the technology sector is fueling demand for flex space.  Much of the new industrial supply has been on a build-to-suit basis, and building obsolescence remains a factor for distribution facilities. 

Vacancy rates are likely to average 9.6 percent in the fourth quarter and 9.4 percent by the end of 2008, compared with 9.4 percent in the fourth quarter of 2006.  The areas with the lowest industrial vacancies include Los Angeles and Orange County, California, with vacancy rates of 5.4 percent or less.

The annual rent growth is expected to more than double to 3.9 percent by the end of this year, and is estimated at 3.7 percent in the fourth quarter of 2008 – up from a 1.4 percent annual rise at the end of last year.

Vacancy rates in the retail market are projected to rise to 9.3 percent in the fourth quarter from 8.1 percent at the end of 2006; vacancies are forecast by the NATIONAL ASSOCIATION OF REALTORS® to be an 8.9 percent by the end of next year.  Retail markets with the lowest vacancies include Orange County and Ventura County, California, with vacancy rates of 5.1 percent or less.

The average retail rent is expected to rise 2.9 percent in 2007 and 1 percent next year, following a 3.9 percent increase in 2006.

The apartment rental market – multifamily housing – appears to be impacted by an influx of single-family homes being offered for rent, cutting into the demand for apartment rentals.  Vacancy rates are expected to average 5.9 percent in the fourth quarter, the same as the fourth quarter of 2006, and then ease to 5.6 percent by the end of next year.  The average rent is projected to increase 2.9 percent this year and 3.8 percent in 2008, after a 4.1 percent rise last year. 

The U.S. Census data reports that more than 14 percent of home owners with mortgages – more than 7 million households – spend at least half of their gross monthly income to cover housing costs, including property taxes, insurance and utilities.

About 37 percent of home owners with mortgages spend 30 percent or more of their income on housing-related costs.  This compares with 27 percent in 2000.

Based on income, here is how many people are spending at least 30 percent of income on housing in 2006, according to an analysis by the center:

• Less than $20,000: 97 percent
• $20,000 to $34,999: 79 percent
• $35,000 to $49,999: 56 percent
• $50,000 to $74,999: 35 percent
• $75,000 or more: 15 percent

The metropolitan areas where the highest number of households is paying 50 percent of their income for housing costs include Los Angeles/Long Beach/ Santa Ana and Riverside/San Bernardino/Ontario California at 24%.