Dr Glenn Mueller’s Q2 2019 Commercial Real Estate Cycles Report

This is a Must Read quarterly report for those in commercial real estate   For me this is the most timely quarterly information regarding Commercial Real Estate — Dr. Glenn Mueller’s Real Estate Cycles Q2 2019 report.  The report contains timely and  valuable information for office, apartment, retail, industrial and hotel commercial real estate markets across the country based on almost 300 models tracking occupancy and rental rates.

Dr. Mueller’s analysis of commercial real estate markets covers 54 Metropolitan Statistical Areas’ (MSAs) across five property types.  This report that shows how property types are performing today in a supply and demand framework.  The Cycle Monitor – Real Estate Market Cycles is an excellent resource for checking the pulse rate and blood pressure and relative health across major commercial real estate markets nationwide.

The following table summarizes the latest findings for each of the property types in the study as of Q2 2019 and the trailing 12 months.

Cheap energy and an ongoing recovery in manufacturing coupled with the growing impact of ecommerce made industrial properties the top 12-month rent growth property type.

Dr. Mueller defines four distinct phases in the commercial real estate cycle providing decision points for investment and exit strategies.  Long-term occupancy average is the key determinant of rental growth rates and ultimately property value.  Ideally, Phase 2 is the sweet-spot in for real estate investor performance.

Across the cycle, Dr. Mueller has described rental behavior within each of the phases, using market levels ranging from 1 to 16.   The equilibrium market level is 11, where neither demand nor supply drive rent changes.  This is also the peak occupancy level.

 Recovery   Declining Vacancy, No New Construction

1-3    Negative Rental Growth

3-6    Below Inflation Rental Growth

Expansion   Declining Vacancy, New Construction

6-8   Rents Rise Rapidly Toward New Construction Levels

8-11   High Rent Growth in Tight Market

Hypersupply   Increasing Vacancy, New Construction

11-14   Rent Growth Positive But Declining

 Recession   Increasing Vacancy, More Completions

14-16, then back to 1     Below Inflation, Negative Rent Growth

These are illustrated in the following graphic from Dr Mueller’s report.

The following graph from Dr. Mueller’s Q2 2019 report shows the current cycle stage from a national perspective.    Apartments, given continued ongoing new deliveries in the past five years, are the most mature property type across the cycle and are in the Hypersupply Phase with rents still increasing but at a declining rate.  Many of the individual hotel markets in the 54 metros are also in the Hypersupply quadrant.


The following table shows the 54 markets for Apartments.  Though rents across the nation have increased significantly in recent years, the increased supply is likely to slow rent increases as more markets move into the Hypersupply stage.  

Pay attention to each of the property types in the report focusing on cities that have excess supply, and also those with supply trailing demand.

To download the complete report click https://daniels.du.edu/burns-school/  then scroll down.  Alternatively click https://daniels-pull-universityofdenv.netdna-ssl.com/assets/Cycle-Monitor-19Q2.pdf

Dr. Glenn Mueller is a professor at the Burns School of Real Estate and Construction Management at the University of Denver.  To learn more about him click https://daniels.du.edu/directory/glenn-mueller/

Thanks again Glenn for this great research.


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