There appears to be an incredible amount of commercial construction taking place in many American cities today. With memories of the housing market implosion of the last decade still fresh in many minds, it is natural to wonder if a bubble is developing in the commercial property market. If so, could the financial system be brought to its knees as it nearly was a decade ago?
We are not overly concerned about commercial real estate (CRE) at this time. For starters, fundamentals in the CRE market appear to be fairly solid at present. Moreover, the nation’s banking system does not appear to be overly exposed to commercial mortgages. There are a number of factors that could trigger the next U.S. recession, but we do not believe that a sharp downturn in the nation’s CRE market will be the catalyst.