After six years of increases and growth, the commercial real estate market is beginning to show signs of leveling off. In February, U.S. CRE sales declined almost 47% year over year, to $25.1 billion. January saw sales reach $46.2 billion, which makes the February decline extreme. Many US markets are beginning to see activity plateau, but Miami is still seeing increases in CRE activity, including total sales.
Volatility in global markets and the stock market are resulting in more cautious commercial real estate investments. New lending regulations and concerns over increasing interest rates have resulted in financing being more difficult to obtain. Banks are being more selective in their lending, especially when riskier CRE deals are involved, such as land purchases and new construction. However, banks are still giving out loans to purchase trophy and fully leased buildings. Additionally, increasing interest rates have made it harder for prices to rise, which also contributes to the decline of total sales.
While worrying, the signs of one low month is not definitive that it is the end of the cycle. Rents, occupancies and other factors influence the health of the market and its place in the cycle. Nationally, the marketplace seems to be leveling off, but Miami is still experiencing growth. Rise Realty President Keith Darby says “We have to remember that Miami is a unique market. And for the U.S., the commercial real estate market is much healthier than before the 2008 crash, so it is not likely that we would see as dramatic repercussions we felt eight years ago”.