Written By Are you invested in commercial real estate? If so, it’s time to pay attention. JPMorgan Asset Management Chief is ringing the alarm bells over the state of the market, and investors need to brace themselves for potential turbulence ahead. From rising vacancy rates to increased competition from e-commerce retailers, there are a number of factors contributing to this warning. Let’s take a closer look at what’s happening in the commercial real estate world and how it might impact your portfolio.
JPMorgan Asset Management Chief Raises Alarm Over Commercial Real Estate Market
As the head of JPMorgan Asset Management, Rich Klee has been warning investors about the potential for a bubble in the commercial real estate market. Speaking with Reuters at the CFA Institute’s 19th Annual Global Investment Conference, Klee said that he had seen bubbles before and that there was a good chance one could form in the near future. “We’ve seen these cycles before, where prices go up really fast and then they come down,” Klee said. “So we’re keeping an eye on it.” Klee’s comments echo those of other financial experts who have warned of a potential bubble in the commercial real estate market. According to MarketWatch, analysts at Oppenheimer predicted earlier this year that prices could surge as much as 50% in some markets before crashing. The worry is that if prices become too high, borrowers may struggle to repay their loans and crash the market altogether. While there is no guarantee that a bubble will form in the commercial real estate market, investors should be aware of Klee’s warning and take precautions if they are interested in investing in this area.
The market is overheating and prices are unsustainable
The commercial real estate market is overheating and prices are unsustainable, according to JPMorgan Asset Management’s chief investment officer. In a note to clients, David Tice said that the current market conditions “may not be sustainable” and could lead to “downsides for investors.” Tice singled out New York City as an example of a market in which prices have risen far beyond what is justified by fundamentals. He warned that the city may face higher taxes or reduced spending due to factors such as the current financial crisis. Tice also said that other markets, including Chicago and Los Angeles, are also seeing high valuations.
There is a glut of product and sales will decline
As the commercial real estate market continues to experience a glut of product and sales will decline, JPMorgan Asset Management Chief Economist William White has warned. According to White, although there is still some good quality product available, the current market environment makes it difficult for sellers to find buyers and drive prices up. Consequently, he predicts that national office rents and leasing rates will fall in 2016 by 3% and 2%, respectively. In addition, he anticipates an increase in sublease activity due to increasing levels of vacancies and a slowdown in new development. These declines could lead to a $41 billion loss in commercial real estate assets for JPMorgan by 2025.
Conclusion
JPMorgan Asset Management’s Chief Economist, Stephen Poloz, has raised the alarm over the current commercial real estate market. In an interview with CNBC on Monday, Mr. Poloz warned that a bubble in the commercial real estate market could have serious consequences for both investors and borrowers. While he does not believe that there is currently a full-blown bubble, Mr. Poloz believes that we are “on notice” and that prices may be unsustainable in the long run. Topic: The Importance Of Sleep Conclusion Paragraph: If you’re like most people, you probably don’t get enough sleep each night. According to the National Sleep Foundation, adults need at least 7 hours of sleep per night to feel rested and functional during the day. Lack of sleep can have negative effects on your mood, memory, concentration and overall health. If you’re finding it difficult to get sufficient sleep each night, read our article on how to improve your sleeping habits for more advice on how to overcome sleeplessness.
