California investors may be interested to learn that the commercial real estate market is so hot in many areas of the world that experts are concerned about a possible bubble. Analysts say that the conditions are similar to the mid-2000s boom that crashed the real estate market.
According to media reports, office building valuations in Hong Kong, Osaka, London and Chicago hit record highs in 2015's second quarter. Valuations in Los Angeles, New York, Sydney and Berlin also hit post-2009 highs. U.S. transaction values are also up, jumping 36 percent in the first half of 2015 compared to last year. The $225.1 billion in transactions is up from the pace set in 2006. In Europe, transaction values are up 37 percent.
Experts say that low interest rates and an influx of cash from central banks are responsible for the surge in commercial real estate activity. Big investors in the U.S., Asia and the Middle East are bulking up their real estate holdings because the market appears more attractive than bonds and other assets.
The hot market has caught the attention of federal regulators. The Federal Reserve issued a report to Congress in July that said "valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly." According to investment managers, it is not time to panic, but having too much capital in the market could signal trouble.
California investors wishing to participate in the commercial real estate market may want to obtain the advice of an attorney. Legal counsel could provide assistance when drafting a purchase agreement, settling title disputes, negotiating contracts, developing management agreements and dealing with other real estate issues.