Commercial real estate is experiencing historic inflation
Despite the shock of the pandemic, and now the war overseas, the New Jersey commercial real estate market has recovered in 2021 from its pandemic-induced downturn in 2020 and is expected to continue to grow throughout This year. A record number of commercial real estate transactions took place in 2021. The rapid growth in job vacancies last year, resulting in unemployment below 4% at the end of the year, fueled real estate demand. A record $809 billion in real estate sales took place last year, and real estate stocks gained more than 43% against the S&P 500, about 15 percentage points ahead of the S&P. While the growth of the labor market and the economy are the most important factors affecting commercial real estate, the emergence of a historic rise in inflation also has its effects.
Other important trends propelled the commercial real estate market in 2021. As the stock market rallied in 2021, the bond market fell with inflation at 7%, and investors sought commercial real estate investments with annual returns. between 6% and 12%. Past efforts by the Federal Reserve to keep interest rates low have benefited homeowners who have already taken out large commercial loans and may have staved off a potential meltdown in the housing market. Homeowners who have secured low-interest mortgages over the past few years have the advantage of controlling their biggest expenses in times of inflation. As a result, the value of their properties increased. Values of existing properties with low interest rate mortgages are further enhanced by rising new construction costs and rising interest rates. Fewer new properties being developed limit supply and increase the value of existing properties.