The number of real estate investors world wide has been steadily increasing since the 1980s. As a place to park investment funds, real estate currently represents over nine percent of the portfolios for institutional investors. An “institutional investor” is simply an entity which pools assets for the purpose of investing in various business opportunities. Typical institutional investors can be banks, insurance companies and pension funds for example.
In the United States, real estate generates 13 percent of the gross domestic product on an annual basis. There are many factors that make real estate an attractive investment opportunity. Generally, the value of real estate does not track along side other assets. Because of this, real estate gives investment portfolios some degree ofstability during volatile market cycles. Real estate also tends to retain its value overtime which makes it a strong hedge against inflation. Moreover, real estate can generate income on its own.
In recent years there has been a large influx of money into the commercial real estate market. Part of the reason for this is the low interests rates ever since the Great Recession in 2008. Another reason accounting for the increase of available investment cash is the volatility in the equity markets. Because of these factors, demand for investment in real estate has increased. This in turn has caused prices to rise dramatically. For this reason commercial real estate prices in Park City and in the United States as a whole have grown faster in proportion to the gross domestic product after the recession ended.
There is a fear that high demand spurred by low interest rates may encourage investors to take on more risk then they can handle. This is the type of situations where economic bubbles occur. The fear is that the bubble may pop once the Federal Reserve decides to raise interest rates.