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The commercial real estate market is bouncing back with a vengeance and exceeding forecasts from analysts. The signs are clear: The number of troubled loans are dropping, occupancy is soaring, and office building sales are rising in some of the country's largest commercial real estate markets.

After little new development the last few years, investors are flocking to buy well-leased office buildings in big markets such as New York and Washington, D.C.

For example, in New York alone, "we're seeing prices (for prized buildings) return to 2007 levels" after falling 40 percent in the commercial market downturn, Richard Baxter, vice chairman of real estate giant Jones Lang LaSalle, told USA Today.

The rise in commercial investments is expected to spread to cities such as Dallas, Denver, and Houston, says CoStar real estate strategist Chris Macke.

Meanwhile, mortgage defaults for office, retail, and industrial building loans are decreasing for the first time since 2005 in the fourth quarter. Real Capital Analytics economist Sam Chandan expects they will fall even further, adding that the "worst-case scenarios have been avoided."

The commercial market's stabilized building occupancy has allowed more landlords the opportunity to pay down loans, Chandan says.

Vacancy rates in the first quarter dropped for retail and industrial properties, to 7.2 percent and 10 percent, respectively, and occupancy has gradually been inching up ever since early last year.

Source: "Commercial Real Estate Heats Up; Market's Recovery Exceeds Forecasts," USA Today

Here are some tips for commercial investors:

1. Lock in loans. Don't make the mistake of waiting for loose credit that may be a long time coming. Interest rates are low but will inevitably increase.

2. Hold REIT shares. REITs are all about yields (forget appreciation) and a solid dividend in an uncertain environment. Even with recent REIT value run-ups of 28 percent in 2010, according to the National Association of Real Estate Investment Trusts, funds with high-quality assets should be less volatile than most stocks.

3. Buy land if you can afford to hold it. Developable land prices are cheap, although the wide bid-ask spread is still a challenge for buyers. Remember, says Rochelle, historically most of the big money is made in land plays.

4. Choose infill. Predicting the direction of new growth is tough, so central locations are somewhat lower-risk investments. Infill offers businesses a more diverse employment base, especially among younger workers who prefer urban living.

Felipe Crook

Prudential Americana Group

Las Vegas, NV 87117