Tuesday, April 23, 2013

Commercial Real Estate and Low Interest Rates via FRBSF Economic Letter

Commercial real estate construction faltered during the 2007 recession and has improved only slowly during the recovery. However, low interest rates have led to higher property valuations and are clearly benefiting the sector. The recovery of commercial property prices has been notable. Some measures suggest that, in some segments of the market, prices are close to their pre-recession highs. Valuation measures do not suggest that current prices are excessive.

The recent downturn in nonresidential construction activity has been one of the most severe in memory. Even controlling for the depth of the recession, construction of nonresidential structures has dipped to a share of gross domestic product lower than that seen in any downturn since the 1960s. Figure 1 shows that the sharp drop in activity in the early part of the 2008–09 recession accounts for much of the recent weak relative performance in nonresidential construction.

Read more...FRBSF Economic Letter: Commercial Real Estate and Low Interest Rates (2013-12, 4/22/2013)

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