A New Call for a Bubble...
Every time we hear good news about commercial real estate, some one tries to crash the party with another call that we’re in a bubble, over-extended, and doomed to fail… The Federal Reserve’s Janet Yellen tried it…
The Wall Street Journal attempted it, reporting:
“Investors are pushing commercial real-estate prices to record levels in cities around the world, fueling concerns that the global property market is overheating,” they note. “Deal activity is soaring as well. The value of U.S. commercial real-estate transactions in the first half of 2015 jumped 36% from a year earlier to $225.1 billion, ahead of the pace set in 2006, according to Real Capital.”
“The surging demand for commercial property has drawn comparisons to the delirious boom of the mid-2000s, which ended in busts that sunk developers from Florida to Ireland. The recovery, which started in 2010, has gained considerable strength in the past year, with growth accelerating at a potentially worrisome rate, analysts said.”
Barron’s questioned it.
Now the CEO of U.S. Bancorp, Richard Davis believes the commercial real estate market is overheated, wanting to “hold the line on how much exposure the bank has to a market that he says often carries to much risk,” as reported by The Minneapolis-St. Paul Business Journal.
"It’s an area that we think has some undue risk in it,” he said. “It’s a pretty overheated market, not just in certain locations but in tenures, terms and the decisions some banks are making.”
But as I’ve long said, we don’t fear a bubble.
Prices in many cities may be on a stellar run, but we have to consider that constrained supply and strong demand are very likely to keep commercial real estate running higher for some time.
The headlines may be reminiscent of past bubbles, but CRE is healthier and better positioned for growth than at any other point. We also have to consider that with China slowdown fears and a stronger dollar, we’re likely to see a push toward stability in CRE going forward as well.
Don’t count out commercial real estate yet… The opportunities for growth are outstanding.