David Lereah, NAR's chief economist, stated, "Commercial real estate markets move in response to changes in fundamental demand, which remains solid as a result of sustained job creation and economic growth. Except for some weakness in the retail sector, the commercial market is benefiting from lower vacancies and higher rents."

Institutional investors have been very active in commercial real estate this year. "Large institutional investors such as pension funds and life insurance companies are considered to be cautious and risk adverse, so their shift of funds into commercial sectors is an affirmation of the wisdom of diversification in commercial real estate," Lereah said.

Institutional investors and private equity funds accounted for half of all office buildings purchased during the first seven months of 2006, and also purchased one-third of industrial real estate. These institutions have spent over $31 billion in all of the commercial sectors so far this year, which is seen to be a record for institutional investment in commercial grade properties.

Publication date: 09/18/2006