Is Commercial Real Estate Poised to Continue Expansion, or Are We Looking at a Bubble?


Commercial real estate financing

In a bullish commercial real estate market that is posting decreasing vacancy rates in offices, retail, and industrial buildings across the board, the question hanging over commercial investors is whether the expansion is sustainable, or whether it is a temporary “bubble” that may soon burst, returning the market to the state that it was in only a few years ago.

Early reports from experts do indicate that although many marketplaces are slowing down worldwide, a willingness to invest in commercial properties should indicate continued growth and stability in the commercial real estate market.

American labor is doing well, and corporate entities are starting to ramp up their spending again: both are good signs of growth, and a return to trust and “business as usual” after the recent global financial crises.

Interest rates remain attractive for potential commercial real estate investors: commercial mortgage rates on 20-year fixed mortgages for commercial properties are hovering about about 4.5% and can go a point lower for shorter-term loans, depending on the funding source for the loan.

Commercial mortgage-backed securities, or CMBS, are on the right track: in the last year, they have risen a solid 17%, and newly issued CMBS should end up at about $110 billion by year’s end. And commercial real estate sales for properties above $2.5 million increased by about one-third in the first half of this year alone.

Most tellingly, U.S. pension funds, which lost big after the 2008 crash, trust the commercial real estate market enough to have almost 8% of their assets put into property, up from just over 6% four years ago. A positive indicator, but critics do remain skeptical of the possibilities of long-term growth.

All indicators seem positive, and commercial real estate lending continues to grow, across the entire country. Naysayers may predict that this recent increase in sales is just a bubble, but overall the mood toward buying commercial real estate seems positive and investors are ready to look toward the future again.

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