Is Commercial Real Estate Headed for Another Bubble?

By Ashley Gunn

The Wall Street Journal recently published a front-page story — “Surge in Commercial Real-Estate Prices Stirs Bubble Worries” — in its Aug. 13 print edition. The article argued that rising real estate valuations coupled with low interest rates have created large demand for CRE assets. However, the current environment, particularly spurred in the last year, is reminiscent of the mid-2000s real estate boom — right before the market crashed, causing some analysts alarm. As a result, regulators are watching the market closely, according to the article. It quotes a recent Federal Reserve report highlighting that “valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly.”

On the same day as the Journal article, another article entitled “CRE Market Plateauing? New Sentiment Survey Shows This May Be the Case” from the National Real Estate Investor claimed expectations for the commercial real estate industry will be more moderate for the next year than they were for the last year. The Sentiment Index, released by the Real Estate Roundtable, surveys CRE executives on various market indicators. The results of this survey reflect that conditions are generally good, though there are concerns about global instability, rising interest rates, and the sense that growth opportunities may be getting harder to find at this stage in the cycle. A full description can be found in the press release and survey issued by RER.