The Answer Could Be Yes, Depending on Your Perspective
The answer to whether this is the sweet spot in the CRE market depends on your perspective. From a long-term view, this is definitely not the sweet spot. The late 1990s and early 2000s were much better times to be a part of the CRE industry. Asset prices were high, financing was easy to come by, and there seemed to be an insatiable appetite for commercial real estate.
From a short-term view, however, this could very well be the sweet spot. Prices are low, interest rates are at historical lows, and there are plenty of opportunities for those who are willing to take a chance.
So, what’s the right answer? It depends on your perspective.
The CRE Market from a Long-Term Viewpoint
From a long-term view, it’s hard to argue that we’re in the sweet spot of the CRE market. Sure, there have been ups and downs over the last few years, but overall prices are still well below their pre-recession peaks. That’s especially true when you adjust for inflation.
And it’s not just prices that are down; financing is also more difficult to obtain than it was during the heady days of the mid-2000s. Lenders are much more cautious now and they’re only willing to finance projects that they perceive as low risk. That’s why we’re seeing more properties being sold with all cash offers; buyers simply can’t get financing.
All of this has led to a decrease in transaction volume. In 2007, there were more than 60,000 commercial real estate transactions in the U.S.; by 2009, that number had fallen to just 30,000. It has slowly increased since then, but it’s still well below pre-recession levels.
The bottom line is that from a long-term perspective, this is definitely not the sweet spot in the CRE market. Prices are down, financing is harder to come by, and transaction volume is still below pre-recession levels.
The CRE Market from a Short-Term Viewpoint
From a short-term perspective, however, this could very well be the sweet spot in the CRE market. Interest rates are at historical lows, which makes financing easier to obtain than it was just a few years ago. And while prices are still below pre-recession levels, they have been steadily increasing since bottoming out in 2009. That means there are plenty of opportunities for investors who are willing to take a chance.
Fortunately, there is no shortage of capital available for those who are looking to invest in commercial real estate; money is cheap right now and there’s plenty of it looking for a home. In fact, according to CBRE Group Inc., global investment in commercial real estate totaled $1 trillion in 2015 – the highest level ever recorded! So, if you’re thinking about investing in commercial real estate, now may be the time to do it. However, it’s important to remember that we’re still in recovery mode; things could change quickly, and we could find ourselves heading back into recessionary territory.”
The answer as to whether this is the sweet spot in the CRE market depends on your perspective; if you’re looking at it from a long-term viewpoint – no – however, if you consider it from a short-term viewpoint – yes! – depending on your willingness to take a chance.
