According to a Wall Street Journal report, commercial real estate deal volume dropped 11 percent in 2016. For investors in California or elsewhere, it may be a signal to start looking for other places to put their money. One reason why this may be a good idea is because of the new supply coming online now and in the near future. Extra inventory may place pressure on both vacancy rates and lease rates.
Ultimately, this may put downward pressure on commercial real estate prices. Rising interest rates may result in higher returns for investments that are viewed as less risky than commercial real estate. Therefore, investors may feel content getting similar returns elsewhere while also lowering the risk of losing their capital. Recent data shows that the commercial real estate market may be nearing the end of a cycle.
For instance, the absorption rate in the office market dropped in 2016 from 2015. Furthermore, vacancies increased in 30 metro areas according to a REIS report, which is thought to be a sign of an upcoming correction. Despite these signs, it is important to point out that real estate markets vary by location. Therefore, it may still be worthwhile to invest in commercial real estate in one state or city regardless of national trends.
Those who are looking to invest in a shopping mall or other commercial properties may wish to consult with an attorney. Legal counsel may be able to review the terms of any purchase contract that a buyer may be required to sign. This may decrease the odds that a buyer enters into an agreement that could lead to financial difficulties or other problems. An attorney may also be able to represent a buyer after the sale has closed if any disputes arise.