Is a Market Correction Due for Commercial Real Estate?

4/24/2017

In today’s economy and marketplace (not so far removed from the recession which began in 2008) people will ask the question “Is the market due for a correction?” While we have seen incredible price appreciation and rent growth in the commercial-industrial real estate sector over the last few years, that does not necessarily mean there is not more room to grow. At the same time, general optimism coupled with strong supply and demand fundamentals at the present do not restrict the possibility of a pullback at some point soon.

The argument could be made for both cases, but the consensus among institutional investors and market participants now is that the industrial market is poised for continued steady growth in the near future. Most take the viewpoint that commercial-industrial real estate fundamentals are strong (limited supply for quality space, increasing demand for warehouse space, available capital and low interest rates), and this will result in continued rent increase and asset value appreciation …at least until 2019. However, depending on the outcome of current political objectives, that growth could be stalled or accelerated, especially as it relates to health care, deregulations, energy, tax reform, interest rates (see last month’s article) and geopolitical foreign relations.

While no one has a crystal ball to foretell the outcome of these major factors, we must still take them into consideration when evaluating our local real estate decision(s). For anyone considering a move or change in the next 1 to 2 years, it is important to keep your eye on these events so that you are best positioned to respond to the market. If you’re facing a decision today, make sure you have all the data (comps & availability) so that your real estate advisor and you can formulate the best course of action for your unique situation.

Having uncertainty when making a decision is never a good situation, but in life there is always a degree of uncertainty we must deal with. In the commercial-industrial real estate market, and in the economy in general, the same holds true. However, while we may not be certain about the future we can be certain about the past – what deals have been done and what the trends in pricing have been. With that information available, and the help of trusted advisors, we can make the most informed decision possible.

In conclusion, markets will always have ups and downs, and a long term outlook is always the best course of action. Contact Christopher today to discuss your current situation and the options that are available to you.