“Market is on Edge”: US Commercial Real Estate Bubble Pops, San Francisco Braces for Brutal Dive
by Wolf Richter
WolfStreet.com
May 6, 2016
“The bottom has not entirely fallen out of demand, though.”
Commercial real estate has experienced a dizzying price boom since the Financial Crisis. It goes in cycles. Rising rents and soaring property prices along with cheap credit drive up construction, which takes years from planning to completion, and suddenly all this capacity is coming on the market just as demand begins to sag…. That’s when the cycle turns south.
On a nationwide basis, the boom has been majestic. But now, after posting “nearly double-digit gains for each of the past few years,” according to Green Street’s just released Commercial Property Price Index (CPPI) report, “property appreciation has come to a halt.”
The index was essentially unchanged in April from March – actually microscopically down for the third month in a row, after having soared 23% past its prior crazy-bubble peak of 2007.
While there is “no evidence” that prices of Class A properties have fallen, prices of Class B properties “are probably lower than they were at the start of this year,” the report explained.
And this is what the boom-and-bust cycle of commercial real estate looks like, according to the CPPI, which tracks the value of “institutional-quality” apartment, industrial, mall, office, and strip-retail properties. Note how there are no “plateaus” in these cycles:
The Rest…HERE
