Office properties are the only major property type that has yet to surpass pre-recession price levels. That means prices can still go up and commercial real estate investors have room to profit, said Hessam Nadji, CEO of Marcus & Millichap (MMI) - Get Report .
"In a low yield environment commercial real estate shines as an alternative," said Nadji. "Looking ahead, the usual threats of over-leveraging and overbuilding are not on the scene."
Marcus & Millichap, down 6.5% year-to-date, is the largest real estate brokerage firm in the U.S., specializing in commercial real estate investment sales, financing, research and advisory services.
Office properties have had a "late-to-the party recovery," according to Nadji, because companies had so much excess space leased as they emerged from the recession that job growth did not immediately translate into demand for additional space. That has changed in his view and a continued escalation of demand has translated to healthy rent growth.
This slow ramp-up curtailed the flow of capital into office assets during the early part of the expansion cycle, causing the sector to lag other property types such as apartments.
The professional and business services sector, which predominantly occupies office space, is forecast to add more than 600,000 jobs this year, according to Nadji. This trend will support increases in office space demand. He sees small- to medium-sized companies adding jobs at an accelerating rate, which bodes well for office demand.
Furthermore, Nadji said the lack of overbuilding, due in part to rising land prices and construction costs, suggests vacancies will continue to decline and rents will rise, giving people who buy today a compelling outlook. This lack of overbuilding also partially offsets the emerging trend of companies reducing their office space per worker.
Finally, on the topic of retail properties, Nadji said the problems plaguing department stores should not be extrapolated and assumed to be affecting the entire sector.
"Retail should not be judged by department stores," said Nadji. "Many niches like convenience stores and restaurants are performing well."