At mid-year 2017, the nation seems to be enjoying what has been referred to as a “Goldilocks” commercial real estate market. In the children’s fairy tale, Goldilocks finds the perfect bowl of porridge – not too hot, not too cold, but just right. We currently have roaring stock values, growing GDP, minimal unemployment, rising disposable incomes and increasing spending, which historically would result in rising inflation, market overheating, and a downward turn in the economic cycle. However, this is currently not the case as overall inflation during the first two quarters has been almost non-existent, interest rates remain very low and stable, and commercial property values are rising, but not at the expense of yields and other real estate fundamentals. Seemingly, we are sitting in front of a lovely bowl of porridge!
It’s interesting that in such a favorable market, sales volume is down in 2017 compared to 2016, both nationally and locally. Various factors may be contributing to this including gridlock and uncertainty in Washington, dissipating “distressed property” sales, low new supply, and “peak pricing” concerns (where investors sense a bubble and feel upside may be limited). As to peak pricing, this is definitely not the case locally, as Western Nevada County has greatly lagged its immediate neighbors – Bay Area/Sacramento and Truckee/Reno – in price appreciation over the past few years. This leaves Nevada County positioned for greater profit potential than surrounding areas and the promise of a very strong second half 2017.