Commercial properties in the greater Chicago area are still on the rise* marking the sixth straight year of gains. According to Moody’s, the Commercial Property Price Index for Chicago will increase another 5.0% in 2016 after a 4.7% bump last year.

While not gaining double-digit returns when compared to some other major metropolitan areas, a steady pattern of growth is much preferred over a commercial bubble that could very well burst, much like it did in 2008-2009. Steady growth in commercial property values indicates a more measured approach to investors.

As with residential lending, credit markets for commercial properties have opened up over recent years and interest rates are still very attractive. The Fed’s latest round of FOMC meetings last week didn’t provide us with any surprises and in fact the Fed did tip its hand a bit by announcing an expectation of perhaps two more 0.25% Fed Funds hike before year end. Other analysts however doubt that will happen and don’t see any rate moves at least into 2017. As long as rates remain relatively near where they are now commercial property values will continue to show gains.

Private funds are also playing an important role in this trend. Private Equity lenders typically provide the seed capital needed in order to bring commercial units up to the standards required by banks and other commercial lenders. Private equity provides its investors with double-digit returns while still being secured by the property being financed. It is this type of funds that banks like to see when investing in commercial properties for the long term as private funds rehabilitate properties to the stage where banks and their backers can provide financing. 

*Moody's Commercial Property Price Index March 2016