Brokers involved in leasing commercial real estate need to be especially cautious of high property costs. If they are unable to rent spaces at profitable rates, it can mean serious trouble for the industry and the economy as a whole. The current rise in real estate may make some brokers proceed with caution, but it is more important to understand the context of the prices to determine if they are indeed “too high.”
Just How High Are They? Current commercial real estate prices are rising higher than they were before the 2008 bubble burst. Relative to rents, especially, the costs of commercial property are nearing a historic peak. Overall, however, a flat-line trend is beginning to take shape. Dangers of High Real Estate Prices Elevated prices in commercial real estate can be dangerous to the financial stability of the economy. There is particular risk when banks issue sizable loans for real estate development and the property value goes down before the loan is repaid. This is what caused the near collapse of the economy in 2008. As prices rise, moreover, the commercial real estate leasing business business suffers and brokers may struggle to collect profits What to Expect Going Forward While prices peaked in 2016 and are currently beginning to steady out, the market continues to vary depending on the real estate sector.
Today’s economy, however, is more capitalized and banks are more resilient now than they were before the 2008 crash. If bank regulations that were established during the financial recovery are maintained, the commercial real estate business and the economy as a whole is likely to continue to grow.
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AuthorHello, my name is Roger Dennison and I'm a successful commercial real estate broker, with more than 20 years in the field. Archives
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