Despite all the talk about commercial real estate and real estate in general about to hit a bubble, most experts don’t think we are there yet. Sure, vacancy rates are down and building prices and rents are skyrocketing. However we are most likely near the top of the market but not quite in bubble territory yet. Investor demand is strong as well which is obviously reflected in the other numbers.
Where do we go from here and when will we be at risk for ending up in a bubble? Despite the rapid growth it’s very tough to predict. As fast as everything is moving in the commercial real estate space, the market isn’t deemed “excessive” by experts just yet. Lending standards are a bit looser than normal but they are not nearly as bad as in 2006-2007 and this is to be expected given the state of the market.
Commercial business offices are one of the strongest sectors in the current market. This is driven mostly by high-value and high-prices properties in key locations. Offices out of core locations are still up, but only by about ten percent compared to the 30+ percent we are seeing elsewhere.
The last change that is slowly coming into effect is that while most of the mega-investment in large cities are getting scooped up, people are turning to smaller opportunities. There is a solid amount of capital heading that way, so much so that some experts believe it’s at risk for ramping up too fast. Only time will tell if this slows down or if it becomes a runaway train.