Has The US Commercial Real Estate Market Reached The Crest

With a lot of initial hiccups the commercial real estate industry in US had a great run in the past decade and the market is getting back to normal from the financial crisis. As per the NCREIF Property Index (NPI), the ROI (Return on Investment) for real estate is running in double digit range for the past few years. While the price increases and returns for commercial real estate have been quite good, investors are increasingly anxious about the longevity of this situation.

Positive news that’s waiting for Realtors in the coming years is that, the larger commercial markets have seen significant growth so far and now it’s time for the smaller markets and lower end properties to shine. Recent survey states that "U.S. will outperform the rest of the country in the leasing of all commercial properties".

Rental growth has been strong in recent years with occupancy record high for most of the property types. The interest rate will positively impact commercial real estate rental prices. Market conditions also influence rental rates which often tend to increase your commercial property’s value. Banks & insurance companies are partly filling the void, but their charges can be high and they can also be extraordinarily selective by providing loans only to strong markets. As a result, the borrowers involved in the riskiest deals such as, land purchases and new constructions might find it difficult to come across suitable investors for their properties.

Since the beginning of this year, signs of a cooling real estate market have emerged across the country. Commercial property values in big U.S. cities have started seeing the largest increase during the recent boom. Commercial real estate has thrived in an inflationary environment as inflation pushed up replacement costs and leases. Real estate and other alternative investments are potential growth areas in the US, which have traditionally focused on fixed-income securities. For U.S. markets - real estate in particular, the impact is likely to be largely positive, as U.S. assets become more attractive and valuable to global investors and we can probably expect enhanced inbound foreign investment in U.S.

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