California commercial real estate developers might be interested in a September 2016 survey that was conducted with 51 industry economists and analysts. The consensus among the participants is that the rate of commercial property vacancies is expected to remain low and might move lower, helping to boost rents and property prices.
The Urban Land Institute Center for Capital Markets and Real Estate conducted the survey. It reported that apartment vacancy rates are expected to stay stable while vacancy rates for office buildings, warehouses and retail locations are expected to move lower. Overall, however, the transaction volume for commercial real estate is expected to decline to $428 billion in 2018.
The experts believe that the price increases for commercial real estate will also slow. They expect that the increases will drop to 5 percent in 2016, 4 percent in 2017 and to 2.5 percent in 2018. A participant in the study stated that ongoing growth in jobs is fueling the low vacancy rates along with rising rents and prices. He indicated that should result in solid market returns and earnings growth for REITs in the upcoming years.
The development of shopping centers, office buildings and other types of commercial properties is both exciting and in some ways risky. Since 2015, many U.S. banks have gotten out of the commercial real estate lending market for a variety of reasons, one of which is increased regulatory scrutiny of their portfolios. The issuance of commercial mortgage-backed securities has also decreased. However, hedge funds and other institutional lenders have increasingly been filling the gap. Companies that are seeking financing for new projects or that have loans that need to be refinanced on existing ones may want to have legal assistance when reviewing the terms of the proposed financing agreements.