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Recovery in commercial real estate sectors

On Behalf of | May 9, 2016 | Commercial Real Estate

Missouri residents who are considering making an investment in a commercial real estate project may wonder what sectors are the healthiest from an economic standpoint. Apartments have been doing well since 2011 with peak rental and occupancy rates. In 2014, the industrial sector reached peak occupancy rates and achieved peak rental rates in 2015.

Office properties are recovering, but they have yet to reach peak rates. Retail properties are continuing to struggle. However, the picture is actually more nuanced. The recovery in these sectors depends largely on where the real estate is located. Retail actually has record rates and occupancy in metropolitan areas and top centers. Offices in central business markets are also thriving. Offices in suburban submarkets are struggling as is retail in other areas. For retail, e-commerce as well as an excess of storefronts are partly to blame.

Transaction volumes for commercial real estate have also reached previous highs last seen in 2007 with $460 billion in assets sold in 2015. However, pricing across markets is also uneven and location-dependent. Major metropolitan centers such as New York, Chicago and San Francisco are at 20 percent above their prior peak, but in other areas, pricing is moving more slowly. It seems likely that the economy is mostly recovered and that the current economic cycle is nearing its end meaning that the expansion may be ending as well.

In addition to understanding the economic complexities of purchasing and owning commercial real estate, there are also legal aspects. A person who is purchasing commercial real estate might want to work with an attorney in order to deal with issues that might arise, including conflicts over leases or regarding zoning requirements. For example, there might be a dispute over a contractor whose work is not up to standards or finished on time, and an attorney might help negotiate a resolution.