Commercial Property Taking a Hit

After several years or record levels of commercial real estate investment, with soaring rents and building prices, the market has cooled off since the summer. With rising concerns of the credit market many recent acquisitions have dried up

This market was driven by low borrowing rates for real estate hitting record lows early 2007, according to Stephen Blank, senior resident fellow at the Urban Land Institute, which compiled the report PricewaterhouseCoopers. Cap rates are a measure of the value of property where high cap rates generally mean lower selling prices. According to the report these cap rates will rise between 20-25 basis points next year, while more than three quarters of real estate professionals expect tighter underwriting standards. “The fall-out from the subprime mortgage meltdown in the residential market has seeped into the non-residential sector, causing project delays and a tightening market for financing,” according to Kermit Banker, chief economist for the American Institute of Architects. They publish the Architecture Billings Index, a measure of future non-residential building, that has dropped to its lowest level in nearly a year last month. This indicates that the troubles in the housing market are spreading to other parts of the property market.

However, no one expects the market will suffer the same commercial real estate collapse that was experienced in the 1980s or in the early 2000s. This is because the level of speculative building has been much lower this time around. The markets expected to do very well next year will be those that are positioned to have easy access to international markets. These markets will continue to be New York, Seattle, San Francisco, and Washington.

To read more about the US commercial property set for a tough year head on over to MSNBC.