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Experts predict firm commercial real estate growth

On Behalf of | Nov 1, 2016 | Commercial Real Estate

Missouri commercial real estate developers may wonder if the growth in the market will continue. While experts predict that it will likely not be as rapid as it has been, it shows signs of being sustainable over the long term. One factor driving this growth is an increase in jobs, and this means low vacancy, higher rents and higher purchasing prices.

The vacancy rates for apartments reached historic lows earlier in 2016 and is expected to remain near that point. In industrial, office and retail sectors, it is expected that vacancy rates will continue to fall. However, there will be a slowdown in commercial real estate transaction volume of around 21 percent. While it reached a post-recession high in 2015 of $545 billion, by 2018, it will drop to $428 billion.

Commercial mortgage-backed securities will also decrease from a total issuance of $101 billion in 2015 to $70 billion by the end of 2016. However, it is expected to turn around and climb to $90 billion in 2018. Pricing in commercial real estate is set to decline well below the 5.7 percent average growth rate. Decreasing to 5 percent in 2016, it is expected to reach 2.5 percent in 2018. REIT equity market returns and REIT earnings are expected to grow.

The relative health of the commercial real estate market may prompt developers to increase their output. They might want to work with an attorney on issues such as seeking sources for commercial mortgages. Attorneys can point out that, while some banks have exited the market due to regulatory pressures, the appetite of hedge funds and other institutional investors to lend money to good projects remains healthy.