In time with the recovery of U.S. housing market, its commercial market is taking a turn into an overpriced industry especially for real estate properties in key cities.
According to a report released by real estate research firm, Situs RERC as part of a second- quarter report, "In the previous cycle (that ended in 2008), prices increased over true values by more than 50%, and it would not be surprising to see something similar in the current cycle."
Commercial real estate transactions increased with 23% a year cycle that ended in June 30. The prices have increased yearly for four out of five property types: 10% for industrial sector, 11% for retail and apartments while the hotel sector earned a 19% increase. However, office prices remained stagnant during that period.
According to pionline.com [Pension & Investment], commercial real estate value has risen for the second quarter of the year with a rating of 5.2 on a scale of 1 to 10. Hotel sectors, as well as apartments, are believed to be somehow overpriced with a rating below 5, the same rating during the first and second quarter of 2014. Retail was the only sector that experienced increase in values from 5.1 to 5.5 for the second quarter.
However, according to pimco.com, commercial real estate (CRE) is fairly priced in oppose to the report of Situs RERC. The recovery of the CRE is owed from central- bank- induced environment of low rates. Despite of improvement in fundamentals, capitalization rates should remain low. Capital flows for both debt and equity is expected to continue in increasing.
Investors from pension funds, family offices, insurance companies and sovereign wealth funds said that they will increase their budgets for U.S CRE for the succeeding years with more than 10% compared to their allocations during 2012. With this scenario, CRE asset prices are expected to increase with 3%- 5% in 2015.
