Commercial real estate has been booming this year, with some surprising markets outside of New York or San Francisco making incredible strides. But there are signs the phenomenal run in income-generating properties may be decelerating.
For the first half of 2015, volume in U.S. commercial real estate – properties like office buildings, shopping malls, and apartment complexes priced above $2.5 million – grew 36% compared to the same time last year, according to data compiled by Real Capital Analytics. At $255.1 billion, transactions were just ahead of the pace set in 2006.
A total of 15,610 of such commercial properties changed hands with an average transaction price of $16.3 million. That’s a huge increase in both quantity and price from the first half of 2014 when 13,270 properties averaged $13.9 million.
Location, location, location
The six markets with the largest volume were responsible for 31% of commercial deals. New York, Los Angeles, Chicago, Dallas, Atlanta, and San Francisco had a combined total of $79.4 billion in commercial property transactions in the first half of this year, 42% higher than what they saw the same time in 2014.
Some smaller markets saw much larger percentage upticks. Orlando’s $4 billion of transactions from January to June 2015 was more than three times the previous year. Places like San Antonio, St. Louis, Raleigh/Durham, and Palm Beach doubled their deals amounts from last year.
“We’re starting to see capital move into some of these secondary cities in ways that they’ve been doing traditionally with the primary markets of the U.S.,” said Jim Costello, senior vice president at Real Capital Analytics, adding that Houston’s $6.3 billion in “deal volume has been increasing at such a pace that it’s helping to bring prices up to levels higher than seen before the financial crisis.”
However, Costello doesn’t see a complete comparison in the overall commercial market to the last boom cycle.
“I don’t think we’re headed into another meltdown,” he said. “There are some similarities in high-level numbers, but the things that are taking us there are different.” Continue reading full article here.