The value of commercial real estate in California and other major markets has soared in recent years, but many investors are questioning whether or not this trend will continue under a new presidential administration. The quarter-point interest rate increase announced by the U.S. Federal Reserve on Dec. 14 is expected to stimulate stock markets and lead to large amounts of money moving out of commercial property investments, but some experts believe that real estate will remain a lucrative area for investors.
The nation's gross domestic product grew by a disappointing 1.4 percent during the second quarter of 2016, but the rate of growth more than doubled to 2.9 percent in the third quarter. This indicates that demand for office, warehouse and retail space will remain high, and low vacancy rates generally lead to higher rents. The rising cost of borrowing will also push up development costs, and the competition for available space is expected to be especially fierce on the east and west coasts and in emerging markets like Denver and Salt Lake City.
While stock markets generally offer healthy returns when interest rates rise, sound fundamentals have made the commercial real estate market attractive to institutional investors like pension funds. Memories of the 2008 financial crisis are still fresh and fears of another recession persistent, and some investors are hedging their commercial property positions by adding multifamily residential units to their portfolios.
The returns generated by commercial real estate are often significant, but mistakes can be extremely costly for investors who do not perform sufficient due diligence. Experienced real estate attorneys may be familiar with the legal issues that can plague commercial developments, and they could suggest proactive ways to tackle zoning problems, land use disputes and regulatory hurdles.
Source: The Washington Post, Federal Reserve raises interest rates for second time in a decade, Jim Tankersley, Dec. 14, 2016