Due to low interest rates and extra cash being put into the market by central banks, values for commercial real estate are skyrocketing. Analysts say that buyers in the United States and other countries are buying commercial properties because they are safer today than bonds and other asset types. However, they also warn that there may be too much money flowing into this asset class.
Growth in commercial real estate prices has been steady since 2010, and this has led some to believe that the market is in a late-cycle period. In other words, growth may be too strong to sustain over the long term. The Federal Reserve reported to Congress in July 2015 that rising prices may be putting pressure on property valuations. Other regulators have started to take note of the quickening increase in prices as well.
In the second quarter of 2015, cities such as Hong Kong, Osaka and Chicago saw record prices per square foot for commercial properties sold. In cities such as New York and Los Angeles, the second quarter saw record prices for office buildings sold. While investors in the United States are leading the surge in prices, buyers from the Middle East and Asia are also helping to fuel this uptrend.
Commercial real estate may be sound investments in any economic climate. This is because leases signed by tenants tend to last for many years, which may lead to steady income. However, it may be worthwhile to have any commercial lease agreement reviewed by an attorney to determine whether it complies with all applicable state and local laws and regulations.