Commercial Real Estate Prices Rise


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Commercial Real Estate Prices Rise

Commercial real estate prices continue to rise, and at a rapid clip. This is due to a variety of factors, including the fact that mortgage-backed securities in commercial markets and standards in underwriting have been relaxed somewhat.  The strength of this market positively impacts and reflects the national economy.

Commercial Properties

Commercial real estate properties are those that produce income. This includes the buildings, land, property, air rights, and underground rights of a parcel of land. Some examples include:

  • Shopping malls/retail
  • Office buildings
  • Medical facilities
  • Schools
  • Warehouses
  • Non-profit organizations
  • Apartment buildings

Apartment complexes are considered commercial properties, even though they are used for dwellings. This is because their owners derive income from them. Private rentals, as in houses, cabins, and individual condominium units, are not considered commercial.

Construction of Commercial Properties Fuels Growth

New properties are being constructed at a healthy rate, as well, which has a positive effect on the growth of the United States economy.  Growth is projected to expand from 2.4 percent to 3.0 percent from 2014 to 2015, and then continue to accelerate until 2020. Expansion occurred in:

  • Office complexes
  • Retail shops, outlets, and malls
  • Warehouses and industrial properties

How Commercial Real Estate Is Linked to the Economy

Commercial real estate reflects the U.S. economic picture as a whole, and has an effect on it, as well. The United States economy is calculated based on the GDP (Gross Domestic Product). Some ways healthy real estate markets impact the economy include:

  • Businesses become healthier.
  • Jobs are available to construction crews during building phases.
  • Jobs are available to workers employed in commercial structures upon completion.
  • More lucrative investment returns occur.

Commercial Mortgages

The commercial mortgage-lending climate has become friendlier, which has caused property values to rise. There are several reasons for this favorable economic atmosphere, including:

  • Lower interest rates
  • Rising property values set valuation bars higher
  • Improving fundamentals

How Commercial Real Estate Investors Make Money

While the market value of commercial real estate property is important, there are more factors in the investment picture. Owners of strip malls, apartment complexes, and office buildings make money in several ways, including:

  • Appreciation of the building
  • Rents paid by tenants
  • Profit made when the properties are sold

Individuals and businesses that own or plan to buy/sell commercial real estate are watching the market closely. They know that this strong market is due to a favorable lending climate, a healthy outlook for businesses, and growth in the U.S. economy, and that timing is everything. By being aware of the current financial climate, investors can take advantage of the right opportunities at the right time.