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The Direction of Commercial Real Estate

One area of the real estate market that is headed to a promising direction is commercial real estate. Though experts may agree that there are some areas in the current real estate market that have imbalances in their supply and demand, a lot of real estate developers finding the mobility of capital promising. There was a serious loss of real estate capital during the time when the loss of the tax shelter markets came to be.

Even if it only happened in a short time, it brought about some negative impact on various areas of the industry. Nonetheless, experts in real estate suggest that these losses could be brought about by the fact that the real estate market was crawling with inadequate and unprepared investors. If you are thinking of going the right direction in commercial real estate, you go back to the basics of real estate development. This means you have to go back to real profits, real demand, and the basics of economics to benefit from the market in more ways than one.

Doing a final review of all the aspects that have led to the problems during the 2000s in real estate is crucial to being able to understand what commercial real estate opportunities are currently out there. Real estate cycles have become a necessity in this particular industry. Though there are some product types that have oversupply and will have some effect on how new products will be developed, you have to understand that for the commercial banker, more opportunities are created through them.

The 2000s was the time that there was a boom in the real estate cycle. During the 1980s to the early 2000s, the natural real estate cycle has become an excess of demand in comparison to the supply. During these times, the office vacancy rates have gone down to less than five percent. This has then led to the demand for more office space and other types of commercial real estate property. The development community has then experienced in the same time an increase in the capital available. Simply put, in this specific time period, more funding for debt and equity has been made available for commercial real estate investors.

With the many developments that have been made in the past years, experts can say that the supply for more commercial real estate development will not yet happen unless of course there is real demand for it. However, in some markets, the demand for apartments has gone up and is now more than its supply. At a reasonable pace, you can say that new construction is being done for such.

Today, the current commercial real estate has been considered of current value. This has been de-capitalized then to produce returns that are currently acceptable. These trends have been shown to benefit from having restricted new supply and increased demand. If new development must be made in the commercial real estate market, it should have an existing product that is measurable. This new development can then be financed by the borrower by having an equity contribution that is reasonable.