Robust demand in California and a number of other key areas helped to boost the value of commercial real estate transactions to a record high in 2015, but some economic forecasters are expecting market growth to slow in the coming year. The U.S. Federal Reserve raised interest rates for the first time in almost a decade on Dec. 16, and the increase of 25 basis points combined with falling energy prices and slowing economic growth in China has led to speculation that tougher times may lie ahead.
The commercial real estate market surged in the first quarter of 2015 as investors seeking higher rates of return sought alternatives to sluggish bond and securities markets. Commercial property transactions totaled more than $540 billion in 2015 while high-yield bonds dropped 2.5 percent and the S&P 500 index fell by more than 5 percent.
While few economic experts are predicting that the commercial real estate market will perform as well in 2016 as it did in 2015, not all are predicting stagnation in the year ahead. The more bullish forecasters say that demand for office space in major markets such as Los Angeles, Chicago and New York shows no signs of letting up. They also point out that questions about economic conditions in China and concerns over the energy sector could actually make the secure nature of commercial property investments even more attractive.
The returns offered by commercial real estate development may often be significant, but unexpected problems such as natural disasters, labor disputes and material shortages can cause ruinous delays. Attorneys with real estate experience may suggest taking a proactive approach to tackle construction delays, and they may also explain the merits of alternative approaches like real estate investment trusts that spread risk across a portfolio of commercial properties.
