News & Research Archive

Is the Next Commercial Real Estate Bubble Coming Soon?

Jun 27, 2011

 

At the 2011 Real Estate Finance and Investment Conference in New York, members of commercial capital markets were debating whether the next commercial real estate bubble is imminent. Across the country investors are falling over themselves as they did in the last 'up market' and are looking to invest in commercial real estate. At issue is where the upside to support these investments is coming from.

In the end, rents are tied to job growth. Currently, the United States is experiencing a very nimble job recovery with some evidence that the job market could be entering negative growth once again. Ethan Penner, President of CBRE Capital Partners suggested that the Feds are once again leading the industry down the same path that led to the economic downturn in the mid 2000's. Penner stated "It is incredible to me that we mistakenly believe that pumping untold amounts of liquidity into the market is the answer to the problem to get asset values up".

In the San Francisco Bay Area market we are seeing an increase in job growth through the tech sector, which in turn has given life to its commercial office market. Rental rates are rising in the face of increased demand, which is due to job growth. Without job growth vacancies will continue to remain high and values should remain low. The capital markets see things in a different way. They have large sources of money needed to invest; therefore hyping commercial real estate investment makes sense to them. The problem is that hyping this market could in fact lead to another economic downturn that could be far worse than the last because there is less financial strength behind our current economy to absorb a downturn.

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Written by: Hans Hansson

E-mail: hans@starboardnet.com


Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 26 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email hans@starboardnet.com or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.

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