With this bull market in commercial real estate now five years old (six for public real estate securities), isn’t it time to be cautious? The bull market’s duration does not, by itself, indicate how long it may last.
Country risk is the risk that cross-border cash flows will not be realized because of disequilibrium between the domestic platform and that of another country. Given this potential concern, one may require higher returns from an investment as an offsetting factor.
In the main global gateway markets—New York, London, Tokyo, San Francisco, etc.—metrics save average spreads indicate that the assets in these markets may be overpriced and headed into bubble territory.
With most institutions, not to mention high net worth investors, still under-allocating their capital to real estate, combined with the strong performance of both NCREIF and NAREIT, we can expect more investment capital to come into commercial real estate.
Major shifts have taken place in the commercial real estate industry, which is transforming from a highly localized, deal-driven business to an international market characterized by lower transactions costs, abundant information, lower risk premiums and increasing sophistication.
GDP growth of around 3 percent may fall short of the 4 percent to 5 percent growth seen in past recoveries. This has implications for commercial real estate (CRE): like most investments, CRE typically performs better when the economy’s wind is at its back.
As 2014 gets underway, David Lynn, Ph.D., executive vice president and chief investment strategist at Cole Real Estate Investments Inc., takes the opportunity to make five bold predictions for the year.
Commercial real estate has posted three-and-a-half years of robust total returns, attracting significant inflows of investment capital. At this point we may want to begin to fear our own good fortune, as there is nothing worse than free-flowing capital to encourage over-development which tends to kill the party.