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Commercial Real Estate Boom Won't End on Higher Rates

December 15, 2015

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ByRhonda Schaffler

The commercial real estate boom that’s sent rent prices soaring in places like New York and San Francisco this year won’t end even if the Federal Reserve raises rates this week, according to one expert. “There’s still massive liquidity. That liquidity is not going away anytime soon, and it’s pointed right at the United States, whether it be U.S. investors themselves or foreign investors,” said Brian Ward, president of Capital Markets at Colliers International.

Commercial real estate transaction volume in 2015 could approach the peak volume hit in 2007, right before the financial crisis, according to Ward, who expects volume will hit $500-billion this year. Ward said foreign investment has helped fuel the demand. “Of the $500 billion, I wouldn’t be surprised if we saw roughly $50 billion to $60 billion coming from global sources, of which $10 billion to $12 billion could be Chinese,” said Ward.

“Now compare that to last year, the Chinese were at about $3.8 billion. So you can see just massive, massive increase from the Chinese, and really foreign capital in general.”  Ward said the transactions have been led by deals in the industrial and multi-family sectors. Additionally, foreign investment in hotels have been strong. Beyond the coastal markets, cities like Austin, Dallas, Miami and Atlanta have also attracted investors, according to Ward.

The U.S. market is attractive because the economy continues to recover, while the rest of the world is having some challenges, Ward said. He believes the Fed will raise rates Wednesday, but that they will be “one and done,” and money will continue to flow into the U.S. commercial real estate market.

When asked if there’s a bubble developing in commercial real estate, Ward responded, “bubble is hard to say. I think we’re certainly in a mature part of the market cycle.”

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