CRE Bubble? Not If, But When

Recent NREI article “Low U.S. Interest Rates Are Fueling a Bubble in Commercial Real Estate” claims it is not a matter of if the CRE bubble will pop, but when it will pop.

I wholeheartedly agree with author Jay Rollins’ assessment and strategy. We’ve already seen investor push back on properties purchased post-2015 that are now back on the market. The current owners paid too much, thinking prices would increase, but in my opinion, the market has flattened—with further appreciation less likely than price deflation.

The spreads between real estate yields and other financial instruments are historically low, and like Rollins, I have to believe that interest rates will increase sooner rather than later. I certainly don’t see them decreasing. The best opportunity for upside today is in new development, which has considerably more risk than buying existing assets.

Historically, developers get caught by recession and rising interest rates. This time will be no different. It’s just a matter of when.