Property cycles are vastly determined by ongoing and upcoming economic, demographic and emotional factors that impact demand and supply. The concept of property cycles was first introduced by Homer Hoyt in his book ‘100 Years of Real Estate Values in Chicago’. Since then, property cycles are a keenly studied entity especially in commercial real estate where land or real estate has a big say in the quality of production.
The Commercial Real Estate Cycle can be demarcated into four phases – Recovery, Expansion, Hypersupply and Recession. During the year gone by, in 2014, commercial real estate is indicated to be on the growth path and offers investors better return on their investments. Let’s a take a look at a few key pointers:
The key indicators of growth in the commercial real estate arena are capital markets, debt availability and real economic drivers. With capital markets, the interest rates remain at a low allowing for investors to capitalize on without taking big risks. Secondly, with improving debt availability, commercial real estate stands to gain as applying and securing for property becomes easier. In past few years, we have seen the employment rates steadily climb which means that there is a greater scope for the creation and consumption of commercial real estate.
A word of caution
Apart from this, there are a whole lot of positives that show that commercial real estate prospects are set to improve. However, there are few roadblocks along the way. Reports indicate that in 2015, the increase of interest rates and the new construction will keep the industry from achieving a truly robust growth. Also, experts discourage investors from putting their money in markets with low liquidity and also in projects that require renovation.
Overall, it is likely that there will be an upward growth trend in the commercial real estate cycle.