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Commercial Real Estate in NYC Overvalued but Still Good Investment

Posted on Jun 17, 2014

Commercial Real Estate in NYC Overvalued but Still Good Investment

According to a recent poll by the Gotham Commercial Real Estate Monitor, the price of commercial property in New York is significantly higher than other major cities throughout the U.S. The survey focused on the top real estate professionals in the city and determined that the cost may be high, but most feel it’s a good investment.

The survey concluded that 47% of the real estate professionals polled believed that commercial property in New York is “moderately overvalued” when compared to counterparts in other cities. A third blamed interest rates for the high prices. Many fear that a bubble is growing in commercial real estate similar to the housing fiasco of the last decade.

Those that believe a bubble is forming do so because the vast gulf between property values and property fundamentals. Typically, low interest rates reinforce this argument. However, to them, the improvement in rental income is too small to explain the ridiculous growth of value; commercial properties have tripled in price over the last 30 months, says the Commercial Observer.

Still, according to the poll, most feel the bubble-fear is unfounded. Only 4% said that investing in commercial real estate in NYC was “high risk”, and the majority said they would invest in a commercial property in the future.

The poll found that most professionals in NYC have strong confidence in the future of commercial real estate. Most cite the continuing rise in rental income. They state the rate of growth as a prime example of a bubble-less economy.

According to the Commercial Observer, the demand for investment properties outstrips all other real estate opportunities in the city. This is another reason why investors are confident even though property values are high. High occupancy rates and the superb performance of hotels contribute to this belief. Foreign and old-line capital continues to pour-in at appreciable rates further driving the increase in demand.

The poll is clear in the fact that most investors are optimistic. NYC commercial realtors like Andrew Farkas (see Andrew Farkas on LinkedIn) have made strides in the market and continue to run successful operations. They feel that as long as lenders maintain discipline with equity requirements, the bubble will burst and be unable to form. Overall, real estate professionals feel investing in New York is a good idea.