Wall Street Journal / August 12th, 2015
Wall Street Journal reports: Driven in part by low interest rates in U.S. markets and central banks supplying economies with an influx of cash, commercial real estate assets have broadened their appeal and now look attractive to investors in comparison to bonds and other notoriously lower risk investments. The upswing in demand has driven commercial asset values to record highs and perpetuated a sizable increase in deal activity, sparking concern that such a ferocious and unsustainable rate of growth is a sign that the global property market is overheating.
According to Real Capital Analytics Inc., a commercial real estate data and analytics firm, during the second quarter of 2015, both U.S. and global cities saw record highs, on a per square foot basis, in the values of office buildings. RCA also reported that the value of U.S. commercial real estate transactions in the first half of the year showed a 36% growth on last year’s numbers, and the growth in Europe was even more robust, at 37%. Such numbers seem due, in part, to foreign capital deploying at a rapid rate, both domestically and abroad.
The data from Real Capital Analytics showcases the historic tendency of commercial real estate appeal to peak in instances when interest rates are low. While some find cause for concern in comparing recent levels of demand and pricing to those of pre-crisis levels, others remain bullish, citing markets free from the destabilizing effects of overbuilding and the size of current the spread between cap rates and the 10-year US Treasury yield as combatants to any policy affecting nominal changes in pricing.
View the full article in Wall Street Journal: Record High Commercial Real Estate Prices Seen Globally as Investor Demand Booms