Has Supply Peaked for this Real Estate Cycle?

May 31, 2019 | Jeremy Zirin, CAIA, Senior Research Analyst, Real Assets

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.

Jeremy Zirin, CAIA
Senior Research Analyst, Real Assets

Get to Know Jeremy

Related Content

05.28.2020

The Confluence of Small-Cap Stocks and the Economy

Small businesses are often thought of as the backbone of the U.S. economy. Long before the coronavirus, the Russell 2000…

05.22.2020

Brighter Lights at the End of a Shorter Tunnel

Biotech company Moderna’s announcement earlier this week that its coronavirus vaccine successfully helped healthy adults produce antibodies against COVID-19 sent…

05.20.2020

There’s FAAMG and Everyone Else

Since the S&P 500 bottomed on March 23rd, the stock market has taken off while economic fundamentals have worsened. As…

05.14.2020

It’s Not Bad News for All Energy Stocks

With the steady stream of negative economic data, record-shattering unemployment figures, and ballooning government deficits, it has been hard to…

05.11.2020

Is It Game Over for Value Stocks?

Over the last ten years, growth stocks have outperformed value stocks by an average 5.3% per year, and the differential…

05.08.2020

Declining Jobless Claims When Unemployment is 14.7%?

New jobless claims fell from a peak of 6.9 million for the week ending March 27th to 3.2 million for…

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 >