The commercial real estate market continues to be plagued with rising vacancy rates. But according to a recent report by the National Association of Realtors (NAR), vacancies should level out in most markets by the end of this year or early 2011.

Lawrence Yun, NAR chief economist, said the multifamily sector is currently a “bright spot” in commercial real estate. He said this sector can expect increased demand as the economy creates jobs and new households are formed, likely in the second half of this year.

However, Yun predicts the office, warehouse, and retail sectors will continue to experience the delayed effects of the recession. He said these sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011.

The Society of Industrial and Office Realtors (SIOR), in its SIOR Commercial Real Estate Index, an attitudinal survey

of nearly 700 local market experts, confirmed that significant fallout from the recession remains, but to a lesser extent.

The SIOR Index, which measures 10 separate variables, increased 2.7 percentage points to 38.2 in the first quarter, compared with a level of 100 that represents a balanced marketplace. This marked the second consecutive gain following nearly three years of declines. According to SIOR, the last time the market was in equilibrium was in the third quarter of 2007.

Malay Bansal, head of portfolio management and advisory for commercial real estate and commercial mortgage-backed securities (CMBS) at NewOak Capital, an asset management, advisory, and capital markets firm, said there is a dichotomy in commercial real estate at present.

“On one hand, there are worries about commercial real estate, with S&P downgrading three insurance companies – Principal Financial, National Life and Pacific Life – a week ago citing expected losses on commercial mortgages and CMBS,” Bansal said. “On the other hand, every property we have looked at has had 30 to 50 offers from possible buyers already. Portfolios of loans, especially better quality ones, have attracted a lot of buyers too.”

“How do you reconcile the two views? If you purchased a loan or property at the old inflated price, you may be facing losses,” Bansal continued. “But if you are buying based on today’s lower valuations, it might turn out to be a good investment, especially given the returns on other asset classes.”