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Small-cap commercial sales hit record

Sales of large commercial properties have declined over the past two years. It's been the opposite story for smaller properties.

The transaction volume for commercial assets valued under $5 million hit a new record by the end of November, according to the small-cap tracking company Boxwood Means. The sales volume totaled $106.3 million with one month left in the year, which was 19 percent higher than the full-year 2016 transaction volume level.

smallcommercial“Risk-adjusted returns of small commercial assets — especially in secondary markets — remained attractive to local, mostly private buyers and small real estate owner-operators,” Boxwood Means Principal Randy Fuchs told Scotsman Guide News.

Overall origination volume for smaller commercial properties in 2017 should also approach 2016’s record of $240.2 billion.

“Originations will likely fall short of 2016's record volume, but … five consecutive years of $200 plus billion is nothing to sneeze at,” Fuchs said.

The underlying fundamentals for properties under 50,000 square feet, such as lease rates and occupancy, were at or near records at end the year. The demand for space was down compared to 2016 levels, but demand continues to outstrip the supply of new properties.  

“The wild card in all of this is where treasury rates go, or how high rates float,” Fuchs said. “Unexpected or faster increases in interest rates may well dampen enthusiasm for property acquisitions and purchase loans later this year. That scenario isn't entirely inconceivable if the economy — fueled by the administration's massive tax cuts — overheats.” 


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