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Is a Bubble Forming in Commercial Real Estate?

November 15, 2021 by Marcus & Millichap Research Services

CRE is Outperforming, But Not All Property Types Are

  • Retail prices up only 1.9% from 2019, revenue is up 2.2%; Bargain buy since recovery likely to drive demand
  • Suburban Office price +11.5% and revenue +1.1%; Price growth bet on future demand from migration to suburbs
  • Return-to-office uncertainty driving down urban prices

Record Price Growth Supported by Elevated Demand

  • Apartment price +11.9%, revenues +12.6%, with historically low vacancy; Housing shortage to support high demand
  • Self-Storage prices up 15.5%, revenue +17.2%; Pandemic provided demand boost, tapered supply-side risk
  • Demographic trends expected to sustain demand

Do Outsized Gains Mean Cause for Concern?

  • Supply chain disruptions and eCommerce supporting record Industrial price gains of 22%, with revenues up 11%
  • However, record absorption is being met by record construction; Potential oversupply risk in years to come
  • While no bubbles are forming in CRE, investors should consider the supply & demand outlook several years out

Pre-recession growth period: 2019 through 3Q 2021
Includes sales $1 million and greater; Includes urban and suburban office sales $2.5 million and greater
Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

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This information has been secured from sources we believe to be reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Any projections, opinions, assumptions or estimates used herein are for example purposes only and do not represent the current or future performance of the property. Marcus & Millichap Real Estate Investment Services is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2020 Marcus & Millichap and Limon Net Lease Group

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