Is The U.S. Commercial Real Estate Bubble Actually About to Burst?
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For many years, commercial real estate in The United States has consistently been on an uptrend. Over the past few years, there have been many indicators from which we have been predicting a downtrend in the commercial real estate sector, and it looks like we’ll not be waiting for much longer.
In today’s article, we will explain why the U.S. commercial real estate bubble is very likely to burst in not so distant future as a result of the upcoming market changes regarding the coronavirus pandemic as well as changes in people’s habits.
Without further a do, here is everything you need to know about the U.S. commercial real estate bubble:
The trend of the market from 2009 to the present
The overall real estate market of the U.S. has been on an uptrend since the last financial crisis in 2008 and 2009. There are few key statistics you should keep in mind:
- As the results of the Federal Reserve’s ways of stabilizing the country’s economy by using stimulative monetary policies, U.S. commercial property prices have more than doubled since their lows in 2009.
- One of the ways the state stabilizes its economy during a financial crash is, as we all know, by lowering interest rates. The extremely low interest rates lead to a borrowing boom in which commercial real estate loans at U.S. banks surged by 62 % since 2012 (that’s roughly $863 billion)
But nothing is ever quite as good as it looks at first sight. In the past few years, we started seeing issues, which are now just being amplified by the effects of the COVID-19 pandemic. That brings us to the next point.
Last few years of the U.S. commercial real estate market and the current coronavirus situation
We already have been seeing commercial real estate hanging by a thread for the last few years as a result of thousands of stores being closed. The coronavirus pandemic has created perfect conditions for this bubble to burst as most stores were closed from mid-March, and consumers are starting to shift into online shopping. Currently, retailers are bleeding cash, and many of them will likely have to close shop very soon.
Another segment of the commercial real estate market is office spaces, and this segment is about to go through its biggest challenge yet. Not only will we see more vacant offices as many companies will have to declare bankruptcy or leave their offices since they cannot afford to pay the rent, but the habits of society are also changing. Many companies, including the biggest ones in the world, are starting to find advantages of home office both for themselves and their employees, which in the end reduces interest in commercial real estate in general.
Conclusion
After reading our article, you now have all the necessary knowledge about the U.S. commercial real estate bubble, meaning you can prepare yourself for the market changes, which ultimately puts you ahead of everyone.
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