From a small northwestern observatory…

Dr. Glenn Muller of Dividend Capital Research has one of the more intuitive “takes” on the commercial real estate market.  His Market Cycle Monitor  is based on a piece he wrote for the journal Real Estate Finance back in 1995.  It notes that a given type of real estate (office, industrial, etc.) in a particular geographic market (New York, Seattle, etc.) moves through a cycle which can be broken down into four phases:  expansion, hypersupply, recession, and recovery.  The driving force through these cycles is property occupancy — when occupancy levels rise, developers are encouraged to build new product, which leads into a hypersupply situation where occupancies fall and properties go into recession.  For a more detailed look at his model, click on the link above, which will take you to the Dividend Capital website where you can view the 3rd Quarter report.

In short, he finds that as of the 3rd quarter, 2011, most property types in most markets are in the early stages of recovery.  The office market nationally, as well as in about a third of the cities he follows, is still in the late stages of recession (except Sacramento, which is in the early recession stage).  Austin and Salt Lake seem poised to break out into expansion.

In the industrial market, every region is in recovery, with Pittsburgh, Riverside, and San Jose the furthest along.  However, none of these markets evidence being close to expansion at this time.  As for apartments, every market is in some stage of recovery, with Austin close to breaking out into expansion.  Lagging the recovery are New Orleans, Norfolk, and Richmond.  Nationally, the apartment market is right in the middle of recovery, with expansion still a few steps in the future.  The retail market is in about the same position as apartments, but with Long Island, San Diego, and San Francisco furthest along.  Nationally, we’re still close to the beginning of a retail recovery and not very far along.  Hotels seem to be slightly further along than regail, with Honolulu, New York, and San Francisco leading the pack (and poised to break out into expansion).