As the industry mulls “what inning we’re in” one thing is sure: eventually every commercial real estate cycle winds down. Speakers at recent panels and seminars have warned that a recession is nigh, saying this cycle’s lengthened recovery is historically unique.
By the end of 2018, the economic model created by research firm CoStar Portfolio Strategy predicts an 80 percent chance of a recession, says Rene Circ, director of research at CoStar Portfolio Strategy.
“We are in the same camp [as those] that say a recession is likely,” he adds. “Lots of variables pointing to this, such as the unemployment rate nearing full employment and business investments down, which is flattening the yield curve. Fixed business investments are not as strong as a component of GDP.”
Circ cautions that the Federal Reserve raising interest rates will be a negative to the yield curve. “What concerns the most is the growth rate of corporate profits, for a few quarters now, corporate profits have been falling.” At the same time, he says “all signs point to this recession being milder,” because this cycle’s slow-growth economy has meant not many sectors are seeing a bubble.
According to Jim Costello, senior vice president with research firm Real Capital Analytics (RCA), “We’re in the second game of a double-header.”
But while no property type can be 100 percent recession-proof, certain assets are better positioned than others to weather an economic downturn, according to Tony Solomon, vice president and regional manager at real estate brokerage firm Marcus & Millichap.
In this gallery, we look at which property types might be good hedges against an economic downturn.