Apartments leading the uptick in commercial prices

Commercial real estate prices in September were up 6.2 percent from one year ago and are now very close to the peak prices achieved in 2007, according to the National Association of Realtors.

The higher prices are driven partly by very low interest rates, which are forcing investors to seek out rent-income producing assets rather than keep cash in the bank. Furthermore, some investors are borrowing at low rates and then buying properties that generate a much higher yield.

The apartment sector has been the best performing among different property types. Overly stringent mortgage underwriting standards to buy a home have forced more families to stay renters for a longer period of time.

Also, job additions of about 4.5 million in the past three years are loosening up household formation as more young adults are moving out of their parents’ homes. The number of rental households as a result has been solidly rising and will continue to rise for at least a few more years.