JANUARY ISSUE: Economist’s View–Where Are We in the Cycle?
- Jan 05, 2015
Not long ago I took part in a conversation during which someone asked, “What inning do you think we are in during the current commercial real estate cycle?” As a casual observer of baseball, I was inspired by the question to take a fresh look at some long-standing concerns. How many innings will this game last? Are we talking about a national commercial market as a whole, or select markets? Are we considering all commercial property groups or each asset category individually?
At the higher end of the market, the investment trough occurred in 2009. Sales volume bottomed out at $68.1 billion, as the Great Recession caused investors to hit the “pause” button. This was especially true for gateway and major cities, which found their low during the first quarter of 2009. However, for secondary and tertiary markets, the decline continued well into 2010 and 2011.
As primary markets began climbing back, with each successive quarter posting stronger sales backed by capital seeking safety, investors in smaller markets felt left out of the party. Only in 2013 did the resurgence of secondary and tertiary markets finally take hold. So while gateway cities have already notched the fifth year of growth, the secondary and tertiary markets have completed only their second year of gains. In other words, we are watching two altogether different ballgames.