A Window of Opportunity for Commercial Real Estate
As we all know interest rates are low! Commercial real estate loan rates have been on an average of 5% to 7% depending what the buyer is financing. Now they are in the 3% range. Whether you are a seller, owner or buyer this may be the opportunity of a lifetime! Never before in my 45 years in the commercial real estate business have I envisioned interest rates could be in the 3% range.
The Industrial real estate market vacancy rate in Los Angeles was at 1.9% in the 2nd quarter of 2019. Ecommerce growth is creating a big demand for industrial space. As a result, the low interest rates combined with shortages in industrial real estate inventory are pushing up values. Sales and construction of industrial and logistics warehouses in many cities drove up the assessment value growth in Los Angeles County, according to an article in the LA Business Journal dated July 22 titled, “Value Add.”
Therefore, sellers in this marketplace have a chance to obtain prices for their properties at record levels. Buyers on the other hand will be able to lock in low interest rates for 10 years which will provide the buyer with the ability to purchase properties and amortize loan balances more quickly. Existing holders of commercial real estate will be able to refinance their property at low interest rates and increase their cash flow.
Retail and office real estate properties are more prone in this market to have higher vacancy rates and may benefit from lower interest rates. Holders of retail properties and office buildings may be able to install improvements at lower interest rates and make their real estate more desirable and perhaps lease their properties sooner.
This window of opportunity may only last until the election in 2020. Low interest rates may begin to rise in 2021 whether or not the current administration remains in office.