According to Pacific Investment Management Co., commercial real estate prices in the United States could drop 5 percent in the coming 12 months. Lower prices will largely be a result of slowing demand in China as well as declines in oil prices. Already, prices in big cities have fallen 3 percent since April 2016. Although volatility may be high in the near term, PIMCO did say that buyers make find bargains on quality properties as prices fall.
Analysis from Cushman & Wakefield suggests that the number of transactions in New York City could fall by up to 30 percent in 2016 alone. In addition to lower prices, the fact that mortgage-backed securities are more expensive to hold has lead to lower liquidity levels. Furthermore, it means that landlords are paying higher prices to borrow money, which reduces how much they can pay to purchase a property.
Because of lower oil prices, investors in countries such as Canada and others that rely on oil revenues are less likely to put their money into United States real estate. China is also cutting back on investment as it puts controls on how much money is allowed to leave the country. This has lowered share prices of REITs and other real estate securities as well.
While commercial development may mean profits for investors, it could also come with the risk of losing capital. Therefore, it may be a good idea to talk to an attorney before agreeing to any contract or making any commitment to invest in commercial property. An attorney can provide a review of the documentation in order to help ensure that the transaction is in the best interest of the client.