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No Commercial Real Estate Bubble

Posted by: Toddi Gutner on February 21, 2006

Much has been written about the residential real estate bubble –in fact, entire blogs are dedicated to the topic (thehousingbubble2 and economicrot).


Commercial real estate is a much less popular subject, in part, because it isn’t as personal and doesn’t tug at our own financial purse strings. Still, if you’re (still) interested in investing in real estate investment trusts or funding developments with your own private equity, it’s wise to know what the market watchers are saying about the commercial markets.

To that end, a recently released Deloitte & Touche USA LLP report, “Real Estate Capital Markets: 2006 Industry Outlook & Top to Issues” predicts that commercial real estate does not have a bubble to burst.

“While most of the focus has been on the residential real estate bubble, commercial real estate sits at the other end of the spectrum,” said the report’s author, Dennis Yeskey, a principal with Deloitte Financial Advisory Services LLP and leader of the organization’s real estate capital markets practice. “We are in the twelfth year of a substantial real estate rally that, with very few exceptions, has produced an extended and record up-cycle for real estate. Commercial real estate has offered investors an attractive combination of steady returns and low volatility compared both to stocks and bonds, especially over the last five years— and this is something that should continue this year.” Do you agree?

Reader Comments


February 23, 2006 9:35 AM

Of course there is a Commercial Real Estate Bubble - Bubbles are created by monetary polices that reduce the cost of borrowing money - making it CHEAP to risk other peoples money on building yet another Office Building.
Look arouind your hometown - you'll see new buildings going up faster than ever.

harvey goldsmith

February 23, 2006 2:58 PM

I have been in commercial real estate in Southern California since 1978. I have seen bubbles and foreclosures. Have been on both ends of the spectrum, but these prices out here are way to high.
Income expectations or lack of them , have always been for breakeven to low returns in cashflow for the better located and better conditioned properties. So to answer the question is i dont see a bulble, as long as rates remain where they are or a little higher. Prices could fluctuate 15% i feel at the most. Its hard to be a buyer today!!


August 9, 2006 2:09 AM

no real estate bubble??? where did that come from? i invest now and again in commercial real estate and thought i'd better say something; while i agree that commercial gives better returns over the long run than residential, you still have overpriced properties and possibility of prices dropping. remember that part of the equation for commercial real estate is the value of the land. and that my friends is subject to the same forces that more residential property up and down, albeit with less impact.

San Diego lasik doctor

January 18, 2008 11:47 PM

Right Now Sacramento is in the middle of BOTH a residential & commercial real estate bubble!

To me it seems like all the cities that had hyper-appreciation of real estate values from 2000 through 2005 are now really taking some major value declines.

Here in San Diego, I subscribe to: This San Diego real estate publishes a real tell-it-like-it-is blog. His 12-31-07 post Real Estate Market Predictions for San Diego in 2008 is a realistic idea about what this year will hold for not only San Diego, but, all the cities that had hyper-inflation.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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