Calling the top for real estate?
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Calling the top for real estate?

Banks and non-banks are battling for market share in a property market that finally seems to be slowing down in the face of multiple headwinds.


There have been many academic studies on the predictability of real estate cycles, concluding that they happen broadly every 18 years. The accuracy of professor Fred Foldvary’s 1997 prediction in the American Journal of Economics and Sociology that the next real estate crash would take place in 2008 must have taken even him by surprise. By this yardstick the real estate market should be fine until 2024. But it doesn’t feel that way.

“We are now exiting the post-crisis environment and are at the top of the market in certain jurisdictions such as the US, UK, France and Germany,” declares Arnaud de Jaegere, co-head of the real estate structured finance group at Société Générale. “Yields on prime assets are very compressed.”

Despite this there still seems to be voracious appetite for the asset class.

The market is facing a number of issues, from the speed with which buildings now become obsolescent to the threat of e-commerce, but the average cap rate (the ratio of net operating income to property asset value) spread continues to grind lower, falling 42 basis points over the 10-year treasury rate in the first half of the year, according to CBRE, which was ranked fourth in Euromoney’s real estate survey ranking of investment managers this year.

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