Shown below is one expression of the cycle:
Each product type, industrial, office and retail, have their individual cycles, but generally during a major economic slump they will follow a similar path.
We all know the old real estate saying, "Location, Location, Location", but throughout my career, the really big money has been made as a result of TIMING. It is those investors who have the wherewithal to buy near the bottom and sell near the top. It is a very simple strategy, but difficult to carry out because of the impact of psychology on the overall market's behavior. This can be seen during the current downturn by the large spread between the Ask price and the Bid price. When the cycle moves from either a peak or a trough, the greatest difference in Bid/Ask price occurs. The reason, the seller/ask or the buyer/bid belief that the peak or trough point hasn't been reached as it continues to move away, shown with the red arrows below. The faster the cycle's turn, the more the gap increases.
The red arrow pointing past the cycle's bottom is where commercial real estate buyers are today and if their sentiment is accurate, we haven't yet reached the bottom of the cycle.
The red arrow going past the peak is where we were in 2007 and the Ask price continued beyond while the Bid began a fairly rapid fall as a result of financing issues throughout 2008. Finally in 2009, the seller's ask price began to fall (if they were still marketing their assets), but the buyers were firmly sitting on the sidelines. Thus, one of the lowest volume trading years since the early 1990's.
I personally believe that 2010, and maybe even 2011, will also be quite anemic volume years due to the federal government's generosity in allowing banks to extend their commercial loans and not mark them to market. As long as these underwater assets are allowed to remain as performing loans, the longer it will take to reach the market's bottom and and turn towards recovery.
