Has Supply Peaked for this Real Estate Cycle?

May 31, 2019 | ,

Has Supply Peaked for this Real Estate Cycle? chart showing year over year growth in property stock

Deliveries of new supply (property stock) in the commercial real estate market appear to have peaked in 2018 across all major property sectors (apartment, industrial, office, and retail). Higher construction and labor costs, as well as positive net absorption (demand), particularly in the apartment sector, are keeping supply in check. These supply dynamics give us comfort that the next real estate slowdown will be less severe compared to the last two cycles when oversupply prior to a recession exacerbated the downturn.

Despite further moderation in returns, overall fundamentals (absorption, occupancy, fund flows) remain relatively healthy across the real estate sector. Real estate lenders are more risk aware and showing heightened levels of discipline in this cycle compared to the last cycle. Strong fundamentals coupled with tightened lender behavior and little to no expected interest rate increases in 2019 should lead to stable real estate pricing and cap rate spreads to U.S. Treasury yields. As a result, we expect total returns in the mid-single digits for core real estate with an emphasis on income growth (NOI) over appreciation.

Print PDF > Has Supply Peaked for this Real Estate Cycle?

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

09.17.2020

Resilience in U.S. States, Cities, Health Systems, and Universities: Municipal Asset Class Review & Outlook

To date during this COVID-19 pandemic, both U.S. municipal bond issuers as well as municipal bond strategies have proven to…

09.16.2020

A Key Rebalancing Consideration: Drawdowns

In times of market turbulence, investments may sustain peak-to-trough declines known as drawdowns. The COVID-induced drawdown in March was no…

09.14.2020

Is Now a Good Time for Equity Long/Short Strategies?

The investment landscape looks different post-COVID. Real interest rates have fallen into negative territory. The outlook for investment portfolios built…

09.10.2020

Do Presidents Play a Role in Equity Performance?

With market volatility already heightened due to the COVID-19 pandemic, the U.S. presidential election this year poses another layer of…

09.09.2020

We’ve Come So Far, but Maybe It Was Too Fast

It had been smooth sailing in equity markets since the first quarter’s bear market. The S&P 500 index eclipsed the…

09.03.2020

Market Recovery: A Closer Look at Sector Performance

The S&P 500 hit its Covid-induced trough on March 23rd, closing at 2237 points. Since then, it’s more than made…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >