A report by the U.S. Federal Reserve Bank, warned that prices of commercial properties, which have significantly outpaced rental income, are now a “growing concern”, according to Reuters.
In its semiannual Monetary Policy Report to Congress, the Fed explained that “commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels.” The report further cautioned that “valuation pressures may leave some smaller banks vulnerable to a sizable CRE price decline.”
Commercial real estate loans have reached $1.97 trillion, of which two-thirds are held by small banks. Meanwhile, U.S. commercial properties more than doubled since 2009, according to the Fed.