Activity in the commercial real estate industry is expected to rise thanks to an improving labor market and continued demand for multifamily housing, according to the National Association of Realtors’ Commercial Real Estate Outlook.

Among highlights in the report is the fact that commercial real estate in small cap markets has maintained upward momentum in the first half of 2016, with the NAR members reporting continued improved fundamentals and investment sales.

In terms of specific commercial property types, national office vacancy rates are projected to drop 1.5% to a rate of 10.4% in the coming year. Vacancy rates for industrial and retail properties are also expected to decline, with the NAR projecting a drop of 0.7% to 8.7% for industrial spaces and a decline of 1% to 10.5% for retail spaces.

The multifamily sector of the market is expected to see an increase in vacancies as new apartment construction boosts available space for renters.

NAR Chief Economist Lawrence Yun pointed out that while activity in the commercial real estate sector has increased, underwriting standards have grown more rigid.

“Any further tightening in credit standards, which never fully normalized after the recession, would inflict the most pressure on the small and mid-sized businesses that mostly look to community banks and credit unions for financing,” he said.

If this is the case, borrowers may find that they need to turn to the services of brokers with connections to nonconforming commercial mortgage lenders. With fewer regulatory hurdles to jump through, these lenders can provide brokers with the mortgages their borrowers need to stay competitive.

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