There is much debate over the timing of the next correction, but a growing number of industry leaders are reporting a late-cycle feel. Peter Muoio of Ten-X is among them. At the Trigild Spring Lender Conference earlier this month, Muoio said that flat commercial real estate prices and a weak global economy is producing a late-cycle feel.

“In most property segments NOI growth is slowing as a result of either vacancies edging up, rent growth slowing, or both,” Muoio, chief economist and EVP at Ten-X, tells GlobeSt.com. “In segments and markets where vacancies have declined and generated strong rent growth, we have seen development pick up. In some segments, demand remains positive but less robust than previously. In the commercial real estate capital markets, prices have been relatively flat for a while now and deal volume slowed sharply in the first quarter of this year.”

The end of the cycle, of course, means an economic downturn. The way that downturn will come, however, is still unknown. “An economic downturn could be the result of all sorts of triggers, including some confidence shattering event, a financial market disruption, geopolitical events and so on,” says Muoio.

This talk isn't new, but it is increasing. More and more investors are showing concern that the cycle will end soon. Despite the waning market optimism, however, investment volumes and trends tell another story. In 2018, for example, investment volumes were at record-breaking levels, totaling $537 billion, according to Ten-X research. So, why the dichotomy? “The strength of transaction volumes in the second half of 2018 was boosted by entity level M&A deals,” says Muoio. “In a way, this can be viewed as a defensive response to a more difficult environment as real estate entities bulk up in the absence of organic growth opportunities or because they are facing intense pressures. Deal volume was also boosted by the initiation of the Opportunity Zone program, which is attracting a lot of new capital. First quarter deal volume was down sharply, to the lowest level since 2014.”

Even as sentiment continues to shift, Muoio doesn't expect deal volume to suddenly dive. Instead, there will be an ebb-and-flow. “We will likely see fits and starts in deal volume in response to shifts in the economic outlook, interest rates and confidence,” he says. “However there seems to be an underlying caution among the investors tied to the length of the cycle.”

Instant Insights /

It “Feels” Like the End of the Cycle Is Nigh

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