Real estate investors in Florida and around the country have become more cautious in recent months as soaring prices have prompted many industry experts to predict that commercial property values are nearing their peak. Reports of a developing asset bubble remind many investors of the losses they suffered during the 2008 financial crisis. However, these concerns were not enough to prevent the Moody's/RCA Commercial Property Price Index from reaching a new high in April.
Figures from the financial sector reveal that banks in Florida and around the country have been making fewer loans since the U.S. Federal Reserve started inching interest rates upward in December, but the commercial property sector has so far been able to avoid this trend. However, experts say that this is likely due to the nature of commercial real estate loans and not a reflection of the overall strength of the property market.
Florida residents may know that real estate investment has slowed to a crawl in many parts of the country. This is true even as a real estate developer was elected president in November 2016. In New York City, sales fell to $4.3 billion, which is a 58 percent decrease from the same period in 2016. Sales dropped by 18 percent overall in the United States during that time period.
Real estate investors in Florida and around the country often begin by purchasing single-family residences, but many of them soon switch their focus to commercial properties like stores, offices, restaurants and warehouses. Commercial real estate generally provides higher yields, has less demanding tenants and is not as risky as residential property speculation. For landlords, the difference between commercial and residential property investing can be significant.
Some Florida commercial real estate investors and developers might wonder how the rise in interest rates will affect the industry. The answer is somewhat mixed. Borrowing money becomes more expensive when interest rates rise, so this suggests that there could be a slowdown in the market. On the other hand, rising interest rates go hand-in-hand with a healthy economy, and a healthy economy overall could be good news for commercial real estate. In general, business leaders are optimistic about the economy although the Federal Reserve anticipates modest economic growth in the years ahead.
Many investors in Florida and around the country invested money in commercial real estate in the wake of the 2008 financial crisis. It can take years to complete major commercial developments, and supply has struggled to keep up with demand in recent years. This has led to robust returns and widespread optimism among investors, but some experts believe that the current cycle may be reaching its peak.
As technology evolves, it has changed the way in which Florida residents and others conduct real estate business. With companies like ClickNotices and AppFolio, landlords can keep track of when rent is due or respond to maintenance requests. Property platform tools also help tenants make maintenance or other requests from their phones while allowing investors to track their returns in real-time. Property management tools also help investors or landlords organize their holdings by property type.
Obtaining financing for commercial real estate developments in Florida and around the country will not be as challenging in 2017 as some financial experts have predicted according to data from the Mortgage Bankers Association. The trade group's quarterly survey that was issued earlier in 2017 predicts that commercial property loan originations in 2016 will fall just 1 percent short of 2015 figures despite a 7 percent year-over-year fourth-quarter decline.
Self-storage facilities are generally utilitarian and relatively uninspiring structures, but a Florida real estate development company is working to change their image. The company has submitted plans for a climate-controlled 101,533-square-foot facility in the city of Plantation that will feature a glass and brick facade. Storage facilities provide robust returns of between 8 and 10 percent, and they are springing up at the rate of about one per month in Broward, Palm Beach and Miami-Dade Counties.
Commercial real estate investors in Florida may be interested to hear what Federal Reserve officials have to say about possible interest rate hikes. On Feb. 1, the Federal Open Market Committee stated again that it planned to raise interest rates gradually this year. Officials have tentative plans for three quarter-point interest rate increases in 2017.