The cycle of Commercial Real Estate

Cycles… what are they? In baseball, there is hitting for the cycle, which is a batter hitting a single, double, triple and a homerun in one game. In astronomy, there is an orbit cycle in which planets rotate around an object. There are bicycles and motorcycles in which the wheels travel in a circular motion. I think you get the picture: cycles are events that reoccur or repeat themselves in the same order and the same intervals.

Just as there are cycles in baseball and astronomy, there are cycles in real estate as well. Let’s take a look at how cycles work in commercial real estate.

Integra Realty Resources, Inc. refers to four different market cycles as Recovery, Expansion, Hypersupply and Recession. We will use these four phases to describe how real estate cycles function in the industry.

  1.  RECOVERY occurs when you see vacancy rates decrease with a moderate absorption in the market place. Also, you will see a slow start in new construction and low to moderate growth in employment.
  2. EXPANSION occurs when you have continued decrease in vacancy rates and a higher absorption rate. New construction and employment is typically moderate to high.
  3. HYPERSUPPLY, or more typically known as a soft market, has increasing vacancy rates with either low or negative absorption. New construction usually remains moderate to high but employment starts to decline.
  4. RECESSION usually shows even more of an increase in vacancy rates and also a

Continued drop in the absorption rate. New construction starts to slide as well as employment growth.

Any market can determine the what phase it might be in by performing an analysis of the vacancy trends, new construction starts, absorption figures and employment growth for a particular market. Once you determine what cycle a market is currently in, it will help determine what investment potential there is in the market place.

 

Donnie Laurens
Commercial Real Estate Agent
Macon Commercial Office
478-746-9421