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Commercial real-estate market faltering in 2017

Commercial real estate defaults have become a concern in 2016, indicating that the U.S. commercial property sector might be coming up on a slowdown in 2017. According to a Nov. 15 news report, the amount of money needed to purchase commercial real estate is going to increase, and purchasing is going to become more complicated in the future thanks to new regulations.

Interest rates are presently higher thanks to the election of a new president, which adds to the expense of commercial purchases. One possibility for the industry is that high interest rates and inflation could take their tolls, slowing the market significantly. The commercial property market had been expanding for the last eight years, but 2017 could be different.

Rising vacancy rates have already been indicated, and commercial sales were down 8.6 percent in the first three quarters of 2016. With the rise of defaults on top of this, it's perhaps not a surprise that many are concerned about the future of commercial real estate sales.

One of the major issues is that loans given out in 2006 and 2007 are now coming due; these loans might still be unpayable even though property prices have risen. It's believed that around 40 percent of commercial mortgage-backed loans coming due won't be able to be paid by the borrowers, making it a potential crisis for many. When interest rates are high and rental rates increase, people who own these properties can't fill vacant lots, and that means an income that is potentially too low to pay back the debt.

In this kind of real estate market, it's wise to make good business decisions. This can be a good time to look for a vacant real estate lot, since businesses are looking to fill vacancies quickly to earn back losses. Make sure that you have a solid contract and review it with your attorney before a purchase or rental agreement.

Source: The Wall Street Journal, "Trouble Brewing in Commercial Real Estate," Peter Grant, Nov. 15, 2016

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