Continued momentum in the national economy and job market helped propel widespread pricing gains of commercial real estate in 2014. Unemployment levels are finally beginning to return to normal levels following the financial crisis of 2008. The following list explains the four forces in the economy that are helping commercial real estate properties:
1. Decreased Vacancies
The decreasing unemployment levels and job growth has led to positive absorption and helped to decrease vacancy of office, retail, industrial, and hospitality properties. This net absorption is leading to rent growth and price appreciation across all sectors.
2. Increased Investing in Commercial Real Estate Properties
Investors of all types, from high net-worth individuals to private equity to institutional investors, have taken notice of the decreasing vacancies. In addition, 2014 saw a large influx of foreign investors to the market place looking to place capital in commercial real estate assets. Turmoil across the globe including in the Middle East and Eastern Europe has once again shown that the United States is still seen as the most politically and economically stable in the world.
3. Increased Prices
The increased demand to invest, coupled with near-historically low interest rates, has been felt in primary markets and Class A properties. It has also driven the prices up to a point where many investors have targeted Class B and Class C properties in secondary and even tertiary markets seeking higher yields.
4. Increased Demand of new Commercial Real Estate Properties
Amid this increased demand very little new supply of office, retail, and hospitality properties have come out of the ground while there has been only a moderate new supply in industrial development. The only property sector seeing new supply of any significance would be multi-family, but most experts believe that even that new supply will not be enough to keep up with demand.
All of these market forces resulted in significant pricing gains across all types of commercial real estate properties, all classes of commercial real estate properties, and in all regions in 2014. Barring any unforeseen major events, most experts believe that this momentum will carry over into 2015 and beyond.
For more details on this topic, I would suggest reading For Commercial Real Estate Price Growth, It Was a Very Good Year, recently posted by CoStar.
Click here to access all of my blog posts concerning commercial real estate.
About Chris Palmer – Chris has been working with SVN | SouthLand Commercial since 2010. He primary specializes in working with commercial real estate clients on development and investment related properties. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500 or email him at [email protected]
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