US commercial real estate investors are responding to higher risks by being more cautious about the amount of money they are borrowing. They are also being realistic about the returns they expect on investments.
Buyers have benefitted from the Federal Reserve’s policy of keeping interest rates near zero yet they are still not taking all the capital available to them. When they are prepared to spend, investors have been drawn to prime location properties since these types of investments have offered a better return than Treasury bonds.
According to figures released by Real Capital Analytics Inc., sales of commercial property across the country were up by 19 per cent to $67 billion in the third quarter of 2012 compared to the same period the previous year.
Commercial property prices have been driven up by low rates, which have historically created asset bubbles when they have remained down over the long term. Richard LeFrak, the chairman and CEO of LeFrak Organization has stated that low interest rates may be propping up property values in New York, where there is currently a reduced inventory of properties on the market.
Investors have been moving away from lower-yielding markets like San Francisco and Washington in favour of buying properties in Europe. These countries are still a couple of years behind the U.S. recovery and have a better selection of distressed properties available to buyers at low cost.
In the United States, secondary markets are seeing more activity from investors. Pittsburgh’s office vacancy rate is less than 10 per cent. Huston’s energy sector makes it a very attractive place for investors and San Diego is another current hot spot for commercial property investors.
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