Commercial real estate investors seeking higher returns are turning to smaller markets and buying suburban properties. According to Bloomberg, demand for office buildings, retail centers and warehouses in cities such as Reno, Nevada; Greensboro, North Carolina; and Louisville, Kentucky, is surging as yields shrink for real estate on the coasts and in larger cities. Properties on the outskirts of major metropolitan areas also are attracting interest, with prices for suburban offices rising faster than downtown real estate.
As commercial real estate investors see the potential and opportunities presented by secondary markets, confidence levels are rising and banks, insurers and private-equity firms are preparing to increase financing to the sector. In fact, Wall Street may issue more than $100 billion in commercial mortgage-back securities in 2014, surpassing any other period, aside from the 2005-2007 boom. Capitalization rates for commercial properties in markets such as New York, Chicago and Los Angeles average 6.5 percent, while secondary markets such as Portland average 7.6 percent and areas such as Louisville average 8.6 percent; a good indication that investors will get the higher yields they desire from the small sector.
For the full article from Bloomberg, click here.