Much like the increasing speed of web-based business – the structural shift in commercial real estate is starting in earnest overseas.
In recent years, the different divisions of commercial real estate have trended up (office and industry) and down (retail).
Prices are falling in Europe, the US soon
With current wide bid-ask spreads, prices are expected to go even lower.
Here is the first taste of what portends to happen here in the US which went into lockdown a month after Europe.
Retail property tenants can’t pay their rent. Some leave their business altogether; others will try to renegotiate their leases. The difficultly in retail has come to an accelerated head and it’s in strife.
As indicated by the Green Street Pan-European Commercial Property Price Index, which tracks prices of European retail properties in the most liquid markets, during the month: Retail is down 15.1%, office down 6.6%, and industrial flat at negative 0.7%.
The Green Street Pan-European CPPI, an average of retail, office, and industry dropped 7.5% in April.
According to a recent Green Street report, “The commercial real estate transaction market has largely come to a standstill as buyers and sellers adjust their underwriting expectations and try to agree on a fair price.” Even for the most liquid office and industrial sectors, “assets are still likely to trade at punchy capital values.”
Once the trend in all asset classes: commodities, real estate, capital markets turns negative, expect deflation to take hold.