Is the commercial real estate market boom cause for concern?

On Behalf of | Aug 12, 2015 | commercial real estate

While most people are well aware that the residential real estate market has made a significant recovery over the last few years — much to the delight of homeowners everywhere — they may not be aware that a similar renaissance is currently underway in the commercial real estate market.

Indeed, recently released figures show that the current commercial real estate boom is resulting in numbers that rival or even surpass those reached before the onset of the recession back in 2006.

To illustrate, consider the following statistics from the first half of 2015:

  • The overall volume of commercial real estate in the U.S., including apartment buildings, office buildings and retail centers, grew by 36 percent, slightly more than 2006’s pace.
  • 15,610 commercial properties were sold from January to June 2015 at an average cost of $16.3 million.

What makes this so especially interesting is that while the usual big six markets — Atlanta, Chicago, Dallas, Los Angeles, New York and San Francisco — accounted for 31 percent of commercial real estate transactions, traditionally smaller markets also saw considerable growth. For example, Orlando saw $4 billion worth of commercial real estate transactions during the first half of 2015.

As impressive as all this is, it naturally raises concerns as to whether we are headed for another boom-and-bust crisis on par with 2006.

Experts indicate that this doesn’t appear to be the case, however, as more real estate investors are opting to put more of their own money into projects at the outset and borrowing less. This, they argue, is in direct contrast to 2006 when they would borrow money to cover the cost of the entire project.

Furthermore, they point to numbers showing that the boom appears to be leveling off.

Indeed, while the year-to-year increase in growth in the commercial real estate sector was a remarkable 49 percent during the first quarter of 2015, it fell to 23 percent in the second quarter.

It’s truly encouraging to see this resurgence in commercial real estate, especially here in Florida.

Remember to consider speaking with an experienced legal professional if you have questions or concerns regarding a commercial real estate transaction.