Today, most of the big fish have been caught. To prove that point, throughout the country, spec development is revving its engine, emerging in various product types and markets.

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For instance, in Phoenix, the shortage of functional freestanding industrial buildings has paved the way for more than six new industrial developments, now underway in the Northern part of the market.

Newport Beach-based Turner Development, for example, is developing its new Turner Spectrum Ridge in the Deer Valley submarket in North Phoenix, AZ—an industrial zoned development of mixed-use commercial lots and eight freestanding industrial buildings ranging from 11,000 to 20,000 square feet. Others are following suit, as developers realize that the shortage of contemporary product is driving demand in a big way.

But what does this short supply mean for buyers?

For many, it means it's time to find new opportunities. And many are finding those opportunities in the small balance commercial market.

As background, Voit was recently engaged to conduct comprehensive property-level assessments on over 200 individual, small balance impaired commercial assets in the Western US. The product—a mix of industrial, office, retail and hospitality—were part of a portfolio of over 2,000 assets valued in excess of $1.2 billion. The assets were primarily scattered throughout California, Arizona and Nevada.

The result of these assessments was telling. Pricing for these small balance properties is stabilizing, and even increasing in certain instances. And with that pricing, activity is trending upwards as well. Investors seeking deals are now recognizing the opportunity in smaller balance commercial assets. Similarly, the increasing availability of SBA financing at very attractive terms makes a compelling case for the end-user segment of the market.

A major change that occurred in the market is that investors now have a more clear and compelling exit strategy when it comes to small balance properties. Many of these assets are freestanding, single-tenant buildings which are currently vacant—factors that would have been a substantial deterrent to investors over the past two to three years.

However, as the economy continues to improve and financing becomes more readily available, particularly SBA financing, small business will resurge. And with that resurgence, the opportunity to lease or sell these small balance properties for big profits.

Many big buyers have already begun the process of acquiring smaller commercial properties, modeling their buying structure after the residential frenzy we've seen over the past two to three years. Today, instead of acquiring thousands of homes on the courthouse steps, buyers are purchasing groups of commercial properties in the $10 million and lower range; primarily owner-user assets.

As buyers turn to small balance properties and we continue to move through the improving cycle, deal velocity will continue to increase. Buyers, battling to beat the looming return of increased interest rates, will move swiftly to acquire properties which remain available.

As this rapid deal-making continues, interest rates will inevitably emerge as a major factor to consider as the industry moves forward. While not at the forefront of the current market, a future increase in interest rates is certainly on the minds of all those in the commercial real estate industry, and even emerged as a key point of discussion among attendees at the recent CREFC conference in Santa Monica, CA.

While still in the preliminary stages, lenders and investors are beginning to underwrite interest rate risk into their deals, and CMBS originators and lenders in particular are paying close attention to rates.

We will likely see an emergence of commentary on this subject over the next 12 to 24 months.

Peter D. Beauchamp is a VP in Voit Real Estate Services' Irvine office. Contact him at [email protected]. Darren Tappen is a SVP in Voit Real Estate Services' Phoenix office. Contact him at [email protected]. The views expressed in this column are the authors' own.