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Commercial real estate market verges on breakdown

Prices and valuations of commercial real estate have soared across many markets, including Los Angeles, and the national averages have grown as a result. However, an author with MarketWatch stated that the end of the national bull market may well be nigh. The Northstar Commercial Partners chief executive and chairman pointed to an increase in vacancies and decrease in rent for office space across several of the largest metropolitan markets. He further noted that a "flurry of activity" is often seen simultaneously and signals the end of the bull run.

The author referenced Los Angeles as a similar case, but he provided more exact numbers on New York City. Here, he said, local employment is still supporting growth of commercial real estate, yet the demand is taking a hit. Vacant space was trending upward in the second quarter to 8.2 percent. Developers are still putting the venture capital and bank lending available to them into building and renovating even as returns fall.

The author is careful to note that not all markets are as close to the bull end as New York City and Los Angeles. However, commercial real estate developers and owners alike may soon be scrambling for fewer "pockets of value" in an increasingly bearish market.

Money can still be made on commercial real estate transactions and developments in a bear market, but this is often limited to those willing to think outside the box or follow less noted trends, such as the growth in e-commerce and communications technology. Investors and owners looking to capitalize on an innovative idea or rewrite the rule book are likely to run into problems with zoning laws and other obstacles to changing real estate land use. An experienced attorney could help in understanding and meeting these challenges.

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