Although the state of international markets remains somewhat unstable, the most recent reports for commercial real estate from the National Association of Realtors isn’t all doom and gloom.
In fact, the Business Creation Index (BCI) indicates that new business openings have slowed for Third Quarter 2016, but overall, commercial real estate markets are expected to remain largely stable.
What If the Fed Raises Rates?
The Federal Reserve is expected to raise rates at the end of 2016, and many investors are watching for this event with a great deal of anxiety.
Since the commercial real estate market has already slowed a bit in some areas, a higher interest rate for new purchases may destabilize the market and lead to another recession. Adding that risk to the incredible unstable political environment in the United States following the recent election, the truth of the matter is that it’s anyone’s guess how commercial real estate will fare going into 2017.
Small markets like apartment and office rentals are expected to continue to climb, as more tenants are fighting over a decreasing residential rental supply. If job creation continues to remain stable, however, commercial vacancies will also decrease. This could spur construction starts, which would, in turn, create new jobs in the industry on top of the jobs the new businesses would require. This is the ideal and what the market generally hopes for.
What’s Next for Commercial Real Estate
However, more than a small rise in interest rates could kill all hope, since it would drive the price of buying commercial real estate up, as well as the cost of building new office buildings and commercial spaces. A lack of vacancies for the long term would force stagnation in commercial growth or even create a contraction since there would be no place for a new small business to insert itself into the market.
We’ve been at a risk of a second major recession since the Feds started raising rates at the end of 2015, but so far the changes have been slight enough to protect both housing and commercial structure real estate values. There’s turmoil in the global markets now and a lot of debt floating around, which means that the valiant efforts of the multi-family rental market to keep things afloat could be all for naught.
Right now, experts are cautious and simply cannot say for certain what direction the market is going. It’s currently a good place to be if you intend to buy rental property, but other real estate investments should only be made after a lot of research and careful planning.