Commercial real estate market may not be as strong in 2018

For Florida investors in commercial properties, 2017 was generally a good year. However, 2018 may not be so rosy according to a report by the Mortgage Bankers Association. Slower growth with net operating income and increased interest rates are among the factors cited for the group’s conclusions. Solid income returns on real estate-related commercial investments are still expected, just not as much as what has been seen in recent years. Researchers also don’t think property values will increase at the same pace.

There is some good news for commercial real estate investors. Researchers believe that after-tax yields will likely get a boost because of tax reform legislation that was passed at the end of 2017. Also, occupancy and rent growth should continue as long as the economy remains strong, possibly allowing investors in commercial spaces to offset issues with interest rates and net operating income.

The most glaring trouble spot, according to the report, is with retail properties. In 2017, values for all commercial properties combined increased by nearly 8 percent. However, retail property values only saw an increase of just over 2 percent. According to the Mortgage Bankers Association report, it’s negative perceptions of the retail property sector that likely affected growth rates. On a positive note, vacancy rates for industrial properties have declined as have mortgage delinquency rates for commercial and multi-family properties.

When considering an investment in a commercial property, it may be helpful to seek input from a law firm familiar with the many factors that affect the commercial real estate market. Doing so might provide added peace of mind when weighing investment options. Specifically, an attorney may be able to assess risks, suggest smart investment strategies, oversee negotiations during the purchase process and work out lease terms with potential tenants in commercial properties.