How Far Will Commercial Real Estate Values Have to Drop to Start Making Sense?

Some asset classes, notably industrial and self-storage, have scarcely declined at all, while others, having flown too close to the sun, have plunged into the sea.

By John E. McNellis, at real estate developer McNellis Partners:

Stick real estate in the time-out corner, and 2023 is looking far better than the experts prophesied six months ago*. The S&P 500 is up 16 percent, layoffs are dropping, and economic growth has been so strong—and inflation so stubborn—that Fed watchers are predicting two more rounds of rate hikes. Now, the ballyhooed recession may slowly wash out like a false trail.

Commercial real estate is a different story. Except for single-family residential and a smattering of robust towns across the country, development is DOA. Prices remain high, construction costs are steady, trending slightly upward and rising interest rates are having a twofold adverse effect: loans are that much more expensive and completion values that much lower. Every interviewee for this piece—from South Carolina to California—said they’re either sitting on their hands or slow-playing their projects, hoping to break ground several years out.

One sage labeled 2023 the new 1993, recalling how that wicked recession singled out RE for crushing. Another pointed out that the lenders still answering their phones are offering loans on terms few in their right mind would accept.

Developers wanting to build today must face reality: their proposed tenants are demanding emaciated rent, their contractors holding firm, and their favorite lenders just saying no. On the other hand, owners of existing properties can ignore all contraindications, and insist their properties as valuable as ever. With his amusing predilection for saying aloud what others dare only think, Donald Trump once declared, “My net worth fluctuates with… even my own feelings.”

Search for a good deal today and you will quickly note that Mr. Trump’s approach to valuing real estate is far from unique. The many professionals quizzed on this point swear they have yet to even see a truly good deal. Everything is either still priced at its pre-Covid peak or riskier than BASE jumping. As always, the more optimistic believe deals are just around the corner, while one astute investor said he’s seeing signs of “capitulation.” By that he means a few sellers are reaching for their white flags, about to acknowledge the breathtaking decline in their assets’ values.

Based on sales volumes nationwide, however, there’s been precious little capitulation thus far. One senior executive at a major title company estimates that its commercial transactions are off more than a third nationally, while its California business is even worse, with volumes down 75-80 percent.

For the commercial RE market to recover, either interest rates must revert to their historic lows—how likely is that? —or a lot more capitulation must occur. How much? In our narrow world of supermarket-anchored shopping centers, I’m guessing about 20 percent.

With few comparable sales to substantiate that estimate, you might inquire as to its provenance. By proxy. One way to gauge the rough value of privately-held assets is to check their publicly-traded counterparts. Privates may not have to mark to market, but the publics do. Wall Street resets the values of America’s 200 publicly traded real estate investment trusts (REITs) every minute of the day.

Most REITs specialize in a single asset class—e.g., industrial buildings—some concentrating geographically as well, buying only, say, apartments in New York City. Thus, a REIT that specializes in office buildings can provide a benchmark for valuing a privately-owned office building.

If you wanted an idea of what your supermarket would fetch in a reasonably quick sale, you could investigate a shopping center REIT. While financial verbiage for the publics differs somewhat from that of the privates, it’s close enough—think Spanish vs. Italian—for one to get a rough take on value. In our world, Phillips Edison [PECO] is a decent bellwether because it only owns supermarket-anchored retail. This REIT’s share price today suggests that our centers, taken as a whole, should sell for an average return of 7.1 percent. This, in turn, implies that our valuations of these centers have declined from their pre-Covid days by roughly 18 percent. Do note, however, that individual centers will sell for considerably more or less, depending on their specific attributes.

In short, while a value reset is needed to kick-start commercial RE, it isn’t one-size-fits-all. Some asset classes—notably industrial and self-storage—have scarcely declined at all, while others, having flown too close to the sun, have plunged into the sea. And location plays an enormous role: some areas are thriving while others look like played-out mining towns. But without a reset to market value—whether it’s 5 percent or 50—commercial RE will continue to flounder.

*If economists could accurately predict anything longer range than their own dinner plans, they wouldn’t be economists – they’d be rich. By John E. McNellis, author of Making it in Real Estate: Starting Out as a Developer.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  101 comments for “How Far Will Commercial Real Estate Values Have to Drop to Start Making Sense?

  1. anon says:

    I completely understand why self-storage is … booming.

    Us geezer-boomers are – trying – to downsize and no one, not even our children, want any of our … stuff. :-)

    The kids don’t even seem to want THEIR stuff they didn’t take with them when they flew the coop.

    So into self-storage it goes. Or to charities that might want a bit of it. Or to the landfill.

    With great plans on going through that … stuff in the storage lockers… at a later date.


    All those things you kept because you thought would be worth thousands of dollars in future (NOW) years … everyone else kept them too. Good luck finding suckers … uh purchasers … to take it off your hand for actual money.

    • Wolf Richter says:

      But the boom in self-storage is already over. You can see this from industry data, but also from the publicly traded REITs that track self-storage, such as PSA, which peaked in April 2022 and has since then dropped by 30%.

      • Fed Up says:

        “But the boom in self-storage is already over.”

        Yep, just posted my experience below. Didn’t see your post until after I posted mine.

        • joedidee says:

          except I saw LOTS of it going up all over
          Salt Lake, Idaho, Montana, Denver
          along with many other builders
          crane cities I just mentioned
          went by BRAND NEW 2,000,000 SF industrial warehouse in denver
          let me know when free funny money is coming our way

      • anon says:


        Excellent point!

        And, again ANECDOTALLY, in driving around our area we DO NOT see any new self-storage facilities being built.

        Always good to the ACTUAL DATA!

        Thanks again Wolf!

        • Anthony A. says:

          I just sold my house in June after my wife died in 2022. I threw out enough furniture and other stuff to fill 1/2 of another moving van. The kids didn’t want ANY of this stuff (collectables, antiques (old furniture), knick knacks, you name it). All I kept was some furniture, some tools, and my clothes.

          Downsizing is the theme these days. The youngsters are not into old things or family heirlooms.

        • joedidee says:

          you are exactly right
          we have retired lady in church – husband died
          she shut down their antique shop
          lucky for her they have huge 3 car shop/garage(no vehicles)
          and another 4,000 SF house FULL
          she is selling online only now
          she mention mils/Gen Z want nothing to do with OLD STUFF

        • Kurtismayfield says:

          I had a conversation with an antique dealer this weekend

          All the Boomers are looking to unload at the same time.

          The people who bought a house the past few years already have enough crap in them.

          So your Hummel collection or prime china, besides sentimental value, has very little market value.

        • Mike G says:

          Young people can’t afford to buy big houses so they aren’t going to accumulate a lot of stuff. Even more so when they have roommates and very limited space, or expect to have to move for jobs.

      • PilotDoc says:

        Yep. Overbuilt then doubled their prices. Most people I know are simply getting rid of their junk. There is a ceiling they were willing to pay to hang on to it, but $200/month is too much.

        On the other side, most new housing is multi without garages. Every development builds a storage unit complex. Makes sense: why give them a garage when you can charge them again for one???

        • CCCB says:

          Ha, I recently bought $15,000 worth of gorgeous 18th & 19th century antiques from a collector who had downsized their home and had a dozen storage units costing them $4,000+ a month. My price … $1,000. They were happy to have one less storage unit to pay for and someone who appreciated the pieces.

      • eg says:

        This must be regionally dependent, Wolf — many shiny, new self-storage places going up here in the Golden Horseshoe around the western end of Lake Ontario. I only notice because my wife despises them and points out their construction to me. Dymon appears to be the primary offender — you can’t miss their gigantic, white multistory locations with their blue and yellow signs looming prominently near highway interchanges.

        • Wolf Richter says:

          It’s not construction — it’s vacancies and rents that show that the boom is over. They overbuilt because of the boom, and so now many projects have vacant units, and they’re having to make deals on rents.

          Self-storage isn’t in trouble like office. It’s just that the boom is over.

    • Thomas Curtis says:

      Self storage is handy. I can ship boxes to my indoor unit and they place them in the unit. Now all I need is an online camera in my unit so I can look in from time to time…

      • Harry Houndstooth says:


        When I convert the office buildings to storage we will be sure to be totally wired.

        We will even pick your stuff up and deliver it

        High Security, low temperature and humidity, heavy weight, whatever, we will have the storage you need at competition crushing prices.

        Instead of We Work we will call it We Store.

      • cas127 says:

        “I can ship boxes to my indoor unit and they place them in the unit.”

        Which chain does that? I’ve never found one that will do that…I always assumed that the potential liability (triggered by access to renters’ units) made it a no-go for the storage companies.

    • Debt-Free-Bubba says:

      Howdy Anon Bet the children do want your stuff? Cash that is, HEE HEE

      • anon says:


        Hi yerself! And when did you meet my children? They do seem to have no problems taking cash. Furniture however …

        • Ethan in Nova says:

          The young people can’t afford the big houses to put the stuff in.

        • Lynn says:

          Exactly, Ethan. I lost a house full of 1910 mahogany and solid black walnut furniture because I moved so much and it was impractical. Couldn’t fit it and moving/storage was too expensive. Beautiful stuff,but if I’d known RE was going to become so out of reach I would have sold it even sooner. I just have one small piece left, but it’s enough to remind me of my grandmother.

    • Fed Up says:

      Something’s happening on the west side of Phoenix. I put some stuff in a storage unit out there because it was a good price. I talked to the two women who run the place last week. They said normally they get 60 rentals a month. They are now down to nine/month. It is a very nice climate-controlled facility and reasonably priced. With apt. rents also coming down here, I’m wondering if things are starting to break, in Phoenix at least.

      Summer is the off season here, but for the past few years, it didn’t slow down even in the summer until this year. All anecdotal at this point, of course.

      • Fed Up says:

        Building multifamily, especially build to rent, like crazy and all coming online at the same time. Forgot to mention that.

        • BENW says:

          Agreed. In my area, hardly NO ONE is selling existing homes. We’re in Woodstock GA which has been down right scorching hot up until earlier this year. Like most areas, the market has mostly dried up, but prices are not falling. In some parts of the price range like mine, 23 YO small starter homes ~$330K, values are increasing again.

          My best example I can give is a ~100 home neighborhood right around the corner. They finished 3 houses up front to about 80% three months ago and then stopped working on them. Nadda. But, they did raise the sign from $600s to $700s and these are slab on grade ~ 2,600 SF houses.

          Housing remains firmly in bonkers land, IMO.

        • Lynn says:

          I hope that’s what’s happening north of me. I saw several multi-story construction sites going up.

          Not much is going on the market nor selling here either. There are some landlords selling their unmaintained SFH rentals that are falling apart, and fixing them doesn’t pencil out for them. But they’re sitting as they’re asking too much. Too bad that here in Ca prop 13 applies to rental properties as well as homes. Prop 13 keeps property taxes low until a sale. Shouldn’t be that way. Prop 13 was supposed to help elderly etc stay in their homes.

      • Flea says:

        Problem with west coast cali,Arizona New Mexico is its a desert ,way to many people . Not enough water no water ghost desert in 3 days.Common sense

        • WaterDog says:


          Tbh there is plenty of water…

          …if people didn’t waste it. Get ride of lawns, tropical plants and high water crops.

          Farmers cry, but refuse to use drip irrigation. They plant the highest earning nut orchards w/o regard to water.

          Oh ya and golf courses for days (in the desert).

    • Its_Coming says:

      The kids don’t want the old stuff right now, because they have money to buy new stuff. Once they’ve paid a couple months of student loans, they may start to feel differently about repurposing some of your old stuff.

      I’m 36 with a family of 5 and we eat dinner on the table that I ate dinner on my entire childhood. Thanks Dad!

      • eg says:

        I don’t understand people who need new stuff. I use my father’s old dresser and my wife uses my mom’s, along with their old bedside tables; our daughter sleeps in my parents old bed frame and her dresser is one I shared with my younger brother. We still have my wife’s grandmother’s sofa (that we recovered) along with a sideboard and china cabinet of my parents and I bought an old, used armoire. If I could get away with it I would only use free furniture and never buy any.

        • 91B20 1stCav (AUS) says:

          eg – never underestimate the impact of a purchase-generated dopamine hit on some folks (the advertising sector has dined royally on this knowledge for many decades…).

          may we all find a better day.

        • cas127 says:

          Moving/shipping prices tend to be insane.

          That has to be weighed against local purchase of used/estate furniture (so abundant that tons get left for garbage trucks) or purchase of inexpensive, utilitarian furniture new (or just skipping some furniture…)

          RoomStore prices are about $1250-$1500 per room (still overpriced for somebody like me…) but a 2000 mile move might cost $4000 – $10000.

      • Harry Houndstooth says:

        God Bless You and Your Family !

    • longstreet says:

      You are right
      “Stuff” is out.
      One must remember that two generations ago, people were BROKE
      And when things recovered, they accumulated for fear of being broke againThis was the Depression generation and that attitude was transfered to their baby booming children
      No gen Xer cares about fine China, flatware, dining room furniture, or antiques

      • Ccat says:

        But, they adore house plants. Yeah, house plants are a thing again. They can make a tiny hole in the wall flat seem almost park like.

    • Seba says:

      I was thinking the self storage boom had to do with more populations over last couple decades moving into more urban areas, urban areas had the largest RE rises so more people had less and less space so they put more stuff in storage. I considered it myself but much like your kids I just tossed and sold off everything I couldn’t take/fit. In the end self storage isn’t that cheap anyway and stuff is just stuff.

    • Harry Houndstooth says:

      I absolutely agree: you can count on Americans to accumulate stuff to fill storage units. In the event that existing self-storage fails to decline to a reasonable price, I would be very interested in filling vacant office buildings with self storage.

    • Morbaine says:

      I’ve been floored by how much self-storage has been built in my town.

      The main guess I have as a driver is side gig etsy/amazon sellers using them as their warehouse/office for the business.

  2. Frank says:

    Always winners and losers. An incredible opportunity for companies to lower their office space costs and/or move up to better space. I’m surprised you did not highlight a commercial office building REIT for valuation analysis?

  3. cresus says:

    The cost of capital has increased so drastically, it’s hard to refi and positive cash flow at the same time.

    • longstreet says:

      Yet the “cost of capital” is at historical norms.
      What we had for 14 years was abnormal which bred abnormalities of expectations.

      • Arnold says:

        People have very short memories. Rates were higher for most of the 1990’s and plenty of real estate deals were done.

        • Its_Coming says:

          Arnold, in 90s the affordability of RE was better… so you could afford the interest rates. The reason this period is unique is because we have higher interest rates and higher prices… eventually one will give way, or maybe both.

        • joedidee says:

          I’m gonna have to see
          Rent or Sell
          Still think cash is better in coming months

        • Carlos says:

          Houses (for example) also tracked inflation in the 1990s, and since 2000 they have diverged from inflation by almost 100%.

          In other words, if houses were priced like they were in the 1990s, taking into account inflation, they’d be a bit over 1/2 the price of what they are currently.

          But as we all know, a lot of chicanery has taken place since then.

        • Thetenyear says:


          Short term memories indeed! The average federal funds rate in the 90’s was around 5% vs 10% in the 80’s. Relatively speaking rates were low in the 90’s.

          FFR is 5.5% today vs an average of 0.6 in the 2010’s.

        • BigAl says:


          Boston CRE was ashes from 1989-1994. The rise of the www bailed our economy out. But, of course, massive financialization followed.

          We also still had local businesses (though diminishing) in the 1990s.

          In Northeast cities we are now locked into a scenario where offshoring and AI will eviscerate the “laptop class” and municipalities are more reliant than ever on taxing real estate.

      • bandaid says:

        all due respect, The norm changes daily. In 50 years what will be the norm? With an oversupply of capital floating around, one would think the cost of that capital would be lower not higher. As the capital becomes worth less and less, so would the cost of that capital. I for-see the interest rate norm in 50 years at 0.

        • eg says:

          Certainly the long term secular trend in interest rates has been downward for something like 800 years according to a Bank of England survey in Staff Working Paper 845 by Paul Schmelzing.

  4. BigAl says:

    The Cambridge, MA CRE submarket is the most expensive CRE submarket in the country.

    In Cambridge there are lots of *unoccupied* spaces, but few actual *vacant* spaces because those unoccupied spaces are under lease and many of these have actually been executed since the March, 2020 start of the Covid pandemic.

    It’s tough to get a complete picture of what’s going on there but it seems like this is mostly down to Biotech/drug companies are stockpiling office space for future expansion. In the past those companies were competing with Big Tech (Microsoft/Google/Oracle) along with Boston-based software companies (e.g. Pegasystems) for these spots. But those companies are no longer looking for space in that submarket.

    Anyhow, nothing resembling even the faintest whiff of a CRE pullback there yet – even if it’s relying on a single industry group to keep it propped up.

    • Candyman says:

      While not Cambridge….the metro area is now leasing to Clean energy companies. FYI.. Ribbon tech co. In Cambridge just announced layoffs. So…sit back, relax. Massachusetts will catch up, we are always behind.

      • BigAl says:

        Yes, definitely some clean energy stuff going on W. of Rt 495 and in Metro North. Also some stuff in SE Mass regarding Vineyard Wind.

        But the concentration of recent office leases for Pharm/Biotech around Cambridge/Somerville/Watertown/Newton beggars belief. If/when that reverts back to trend (already high) – it’s going to leave a mark.

  5. old school says:

    Markets can get crazy enough without policy makers making mistakes. Once policy makers went zirp AND stayed there they were turning markets into momentum gambling. So zirp was a mistake, pandemic decisions were a mistake, twenty years of mid east wars was a mistake, too much fiscal was a mistake and Fed being late to do anything about inflation was a mistake.

    The main problem in my opinion is it allowed the political class to not deal with reality for 15 years so that the mismatch between funding and promises has no solution until there is a financial crises of epic proportions.

    With commercial real estate and banks under stress, how is it possible that stock market probably has the worst valuation compared to a t-bill in a very long time? There were buyers at the Japanese bubble peak (supposedly the biggest in modern history) and so we can say there is a certain delusion when bubbles mature..

    I think Druckenmiller says the mismatch between government promises and funding is around 40%. With planned deficits at about 6% plus of GDP in good times, the funding crises will come in a recession.

    The only broad US asset not over priced in real terms is short term treasuries. Stocks are probably in 99% percentile on a price to sales basis. Ten year is probably in about the same percentile being so inverted and inflation at 4%. Some smart money probably can dance until 11.59 at night, but most of us mortals can not.

    • VintageVNvet says:

      Good one OS,,, and the only word I would choose to add is ”some.”
      That would fit into the beginning of ”pandemic decisions were a mistake…”
      Similarly, without the LOL,,, SOME folks who are currently definitely NOT paying any attention at all are going to get burned,,, AS ALWAYS, eh

    • longstreet says:

      “So zirp was a mistake, pandemic decisions were a mistake, twenty years of mid east wars was a mistake, too much fiscal was a mistake and Fed being late to do anything about inflation was a mistake.”
      But for some it was an avalanche of wealth.

    • Bricks says:

      Excellent post!

  6. longstreet says:

    One of the most illiquid markets…
    subject to a cultural change from “work from home” to “shop on line”.
    Malls being refit into apartment complexes and mini villages … the new “small towns”.
    Financial districts? The brokers I use work from home or their oceanside condos….
    exchanges gone electronic…..floor traders and support personnel gone.
    The restaurants that served them….gone.
    Urban cities in the rust belt do not have a bright future.
    So, who owns these giant buildings that are 40% full?
    Insurance companies? State Pension Funds? The ramifications of failures in CRE line up in a bothersome fashion.

  7. Thetenyear says:

    I see more and more people act as if rate hikes are a good thing or that they don’t matter at all. In December 2021 at 4800 the S&P couldn’t handle a 1.5% ten year. We are now approaching 4800 again with Thetenyear at 4% and “two more rounds of rate hikes” baked in.

    Rates matter despite the 16% YTD gain on the S&P, lower layoffs and better economic growth. Bottoms happens when rates at lows not 22 year highs. Don’t believe me? Just ask 2000, 2007 and 2020.

  8. Motorcycle John says:

    Here in Reno with Tesla expanding I am in one of those areas insulated from declines so far. One large Multi-Family project was halted 8 months ago and is still not moving forward. Is this the canary in the coal mine?? In 2008 Reno was hit hard. I follow a condo complex perfect to gage the market and the high was set in 05-06 @ $215k by 2011 they were selling retail for around $65k [ I passed on many foreclosures in the $45k range ] that was over a 50% decline indicative of what happened here last time. Now the units are @ $300k. 6 months ago they were down to 260k. This fall and winter should put pressure again on pricing but without more inventory not much will happen till something breaks big like a big layoff at tesla or banking crisis. Been looking for a large correction/ crash since 2019. Beginning to think it will never come and as a contrarian I look for this sort of complacency.

    • cresus says:

      You didn’t steal a few units @45k? why not?

      • Motorcycle John says:

        I was rehabbing up to 5 at a time and at the courthouse steps those days you could bid on 20 -30 properties a week. I have a great team and can turn homes around in a mater of weeks but Either there were others I had more interest in or was out of money from an earlier purchase. I bid on a few but in the beginning of the crash. I just liked other properties up for bid that day more. I can’t tell you how exciting it is going up against the big boys ” Wedgewood, Blackrock ” and winning. The bigger they are the more they can be off on value!

    • Bs ini says:

      Reno benefits from the CA retirement community as well wonderful city!

      • Motorcycle John says:

        It has been a god send for growth but living here for 50 years it has been a love hate thing. The business relocations are also strong. California must be next to impossible to bear as a small business.

  9. Wolf could I please ask you to publish/ reference a chart of USFED interest rate(s) vs GDP (+-) growth?

    I think the interest rate declines at market bottoms are due to FED pump priming the economy out of recession and the above correlation might confirm this.

    Given this is so…. and the massive deficits being run now…. which MMT predicts will support the economy…

    Would seem the FED has it’s work cut out to create a recession…


    More than 2 more rate hikes???



    • eg says:

      There appears to be an allergy to discussing fiscal policy where inflation is concerned, despite its significant role — the orthodoxy that monetary policy has primacy will be defended at all costs by those who benefit from the misdirection.

  10. Lili Von Schtupp says:

    Self storage is bananas in the Hudson Valley. Climate controlled bins have been scapped up by people who sold before they could find another home/are renting til their next house is built probably somewhere in the Bible Belt. Months long waiting lists for even 5×10’s and 5×5’s, forget anything bigger. I debated giving my bin up (its a godsend when renting and DIY moving frequently) but the financial guilt got the better of me.

  11. Beg4mercy says:

    There’s a narrative forming, on the information highway, that there’s lots of overlapping lags and buffers that obviously part of a very complex economic mish mash — starting before the pandemic and continuing to play out.

    Among the interesting mix, is cash hoarding by corporations during much of ZIRP, allowing treasure chests to grow into the pandemic, which acted as a buffer, during a time where these chests increased in size from stimulus — which is now being enhanced by higher for longer Fed rate hikes.

    That type of buffering was further enhanced by a tsunami of consumers who have ignored higher costs, as corporations go about the business of price gouging — pushing up earnings growth.

    Various lags in Fed hikes are seemingly offset by Fed and Treasury financial engineering that basically allows QT to be glacially slow, prolonging impacts from higher rates. Theoretically, it’s likely that rates will stay higher for longer, especially with a massive amount of short end treasuries flooding the market.

    Obviously student loan repayment, is going to influence consumers, just as many commercial loans need refinancing, so that collision, seems to be a point where the lack of capitulation in commercial valuation probably will become far more visible.

    Although, this slow moving train wreck has been delayed, it eventually will show up at the station. The concept of a rolling recession and easy soft landing is amplified far louder today, because of the lag dynamic.

    Then, there’s work from home and lower productivity and endless waves of social change …

    I totally agree that prices have to go lower, and then lower…. Probably a good time to go long on demolition for shopping malls and old office buildings.

    • BigAl says:

      “Work from home” is starting to die out.

      The traffic into the city from Rt 93, the Rt 90 (The Pike), the Tobin, etc. blew past 2019 levels as recently as last year.

      In other words, “Working from Home” was only ever really thing among urban tech workers who took two hour lunches at food trucks and attended their local Democratic Socialist of America chapter meetings in their spare time. In addition to lowering productivity, WFH has supercharged job offshoring and starving public transportation of badly-needed ridership.

      But, as I said, it’s on the way out even with that group.

      • Arnold says:

        Ha! I love a good parody!

        • BigAl says:

          Parody? I meant every word.

          I am a Big Tech worker near Boston. I am speaking from firsthand experience.

      • eg says:

        If you say so, BigAl — Toronto traffic patterns on the PATH say otherwise, with occupancy below 50%. 2019 is never returning.

        • BigAl says:


          The Boston MBTA showed a similar dropoff. It’s been reversing since Spring. Will we ever get back to 2019 levels? No, of course not. But that’s going to be from a combination of secular decline in available tech jobs due to offshoring and international tourists giving Boston (and other cities in the West) a very wide berth.

          WFH only ever really applied to workers who already lived in those cities, themselves.

    • Ccat says:

      …yep, the demolition thing. Its surprising that concrete, even when steel reinforced doesnt last forever. It doesnt even last a lifetime. A great many of those mega mall and tower office buildings from the past mid century may not be structurally sound anymore.

  12. Thomas Curtis says:

    Thanks Wolf,

    I read everything you publish. It’s like real economics made simpler for layman. It also gets me closer to the real beat of the markets for my short term trades.

  13. Brendan says:

    20% as an average seems entirely conceivable. Since a “you caught us sleeping on the job” 2009 ruling from the SEC, non-traded (broker-sold) REITS must also reappraise their portfolios periodically (qtrly seems ridiculous, annual maybe? Can’t remember) and disclose the per share/unit value to shareholders. That struck a mortal wound to the non-traded REIT bus.

    • J Chimpo says:

      Quarterly but they tell the appraisers what to put …. assuming they want to keep their job that is, and updating a portfolio is easiest/most lucrative job for commercial appraiser.

  14. Candyman says:

    Self storage..boom over. Next step…dumpsters. Why are we saving all this crap? Mom passed away 2 years ago. And thrust me….we ordered a dumpster. Moving on!

    • BigAl says:


      Don’t be so sure. People are saving this crap for fear that it will cost a lot more in the future if they want it again. Inflation is like that.

      • philmbuff says:

        A bloke in the pub who has owned a storage business for years tells me the way the business works.
        People get divorced or suffer a bereavement. They don’t have the emotional wherewithal to deal with the disposal of all their stuff or their families stuff. They put it in storage. Two years later they realise they haven’t looked at it, haven’t missed it and don’t need it, so they get rid of it. This frees up the space for the next divorced or bereaved person…
        From the business owner’s perspective, it is, as we say in the UK, money for old rope.

  15. El Katz says:

    We’re going to put things out on my sister’s driveway and just give it away. She has a lot of good (and expensive) things but I don’t want to go through the brain damage of trying to sell it only to be overwhelmed with scammers. I’d rather people just take it rather than try and steal it.

    I only left things in the house so it’s considered “occupied” for insurance purposes.

    • Anthony A. says:

      When my wife passed away in 2022, I gave away a beautiful all wood dining room set (expensive in the 1980’s), china, flatware and all. It took weeks to find a taker! LOL!

      All the wife’s clothes and other stuff went to a county battered women’s shelter for resale.

      • Harvey Mushman says:

        @Anthony A,

        Yeah, that’s pretty sad. My mom had this really nice wooden dining room set that her and my dad bought in the early 1960’s. She never let anything go on the dining room table unless she had a table cloth on it. We only used that table when company came over. The furniture was in excellent condition. We had to move her into memory care in 2017. We could barely give away that furniture.

        • bulfinch says:

          It’s crazy. I have colleagues who’ve made sizable careers out of vintage or antique reselling. Guess it all depends on the nature/origin/manufacture of the pieces?

      • Bs ini says:

        I am surprised at the difficulty in selling furniture in East Texas everything sells in a weekend

        • BigAl says:

          Around Massachusetts I see a fair bunch of people buying 2nd sets of bedroom & living room furniture (used) and putting them in storage as a reserve in case they need them.

          Buy your umbrellas when the sun is shining.

    • Seba says:

      I recently sold all my furniture through Craigslist (still a thing where I live lol) and I wouldn’t want to go through that again. Second hand market is full of mentally ill people, once in a while you get a proper person who knows what it is you’re selling and they’ll actually be skeptical and ask what’s wrong with it because the price is so low (I priced it all to move fast), the rest just have a shopping and discount addiction, I felt like just lighting my stuff on fire multiple times. Never again.

  16. Brant Lee says:

    “*If economists could accurately predict anything longer range than their own dinner plans, they wouldn’t be economists – they’d be rich. ”

    There you go. I suppose the ultra-rich just keep their mouth shut and continue to rake in the dough, nothing is changing in that regard.

    • Thomas Curtis says:

      That’s why I am glad to have Powell at the FED. He was an investment banker. He provides balance to all of the economists.

      • BigAl says:

        The FED economists do nothing other than pander to the investment bankers. Powell in charge merely formalizes the sovereignty of the fox over the hen house.

  17. Baloney Sandwitch says:

    A quick way of calculating the cap rate of REIT is to divide the Operating Cash Flow by the enterprise value. For PECO I get 5%, which is OK. Hotel REITs are looking attractive – Host and Park for example have cap rates 9% and 7%.

  18. Vi Jay says:

    Would you mind writing a similar article on multi family real estate?
    Most articles out there are either not based on current data like yours or written with certain conflict of interest.

    Thanks in advance.

  19. ru82 says:

    The economic and financial experiences were are seeing are very interesting to say the least.

    No other time was there such a huge printing and handing out of money during COVID.

    There are such weird market dynamics right now because of the easy money.

    Some observations:

    Hotels stock are hitting an all time high yet some hotel CRE companies are struggling because they bought hotels properties with ZIRP floating rates. The hotel servicing company is leasing or servicing the hotel customers is doing well but the higher interest rates are hurting the hotel property owners. LOL

    Then you have the airlines stocks who are very busy and oil is at a reasonable historical pre covid price, yet we are seeing stock prices close to COVID lows when they barely had any customers. Stock prices are below pre-Covid prices.

    Home builders stock prices are higher than they were during ZIRP and free money periods. LOL


    • Stan Sexton says:

      According to RFK Jr: ” Lockdowns were the final straw. We created a Billionaire a day – this was Trump and Biden and 500 days of lockdowns. We moved 4 Trillion from the American middle-class to the Super Rich. We built the people who came into the Lockdown -30 with 1 Billion increase in their wealth – on average by 30%. We closed 3.3 million businesses”.

  20. Gary says:

    Solution to real estate price discovery is easy. Definition: “A contract is a promise that the law will enforce.” Simply stop court enforcement of the REIT contract clauses that limit withdraws from the funds either by legislative action or judicial via “public policy” or the US Constitution commerce clause, possibly that withheld money does not allow people to participate in interstate commerce. The famous case of “Wickard vs Filburn” might be an interesting case for an enterprising corporate lawyer or Federal antitrust lawyer to analogise; even a pro bono case with inherent publicity and name recognition seems interesting.

  21. JTan says:

    Mr Richter
    Could you please explain how Mr. McNellis estimated the 7% return for PECO. I would like to use this as a price estimate method in the future.
    Thank you for your help

    • Wolf Richter says:

      John McNellis, the author, has sent me this answer for your question (he’s out of pocket right now):

      “Answer to his question: a subscription service called KeyBanc Capital Markets does the imputed cap rate calculations for the REITs. A friend shared this data with me. It’s tricky trying to figure it out on your own.”

      • cb says:

        @ Wolf
        @ John McNellis

        John McNellis said: ” [PECO] is a decent bellwether because it only owns supermarket-anchored retail. This REIT’s share price today suggests that our centers, taken as a whole, should sell for an average return of 7.1 percent.”

        I can make no sense of the above assertion at all.

        PECO current price is $35.87
        current P/E ratio is 76.32
        current dividend yield is 3.17%


        • Wolf Richter says:

          As I said:

          John McNellis, the author, has sent me this answer for your question (he’s out of pocket right now):

          “Answer to his question: a subscription service called KeyBanc Capital Markets does the imputed cap rate calculations for the REITs. A friend shared this data with me. It’s tricky trying to figure it out on your own.”

  22. Herb Simon says:

    “In our world, Phillips Edison [PECO] is a decent bellwether because it only owns supermarket-anchored retail. This REIT’s share price today suggests that our centers, taken as a whole, should sell for an average return of 7.1 percent. ”

    How did you make this calculation? Price/Sales?

  23. Stamper says:

    Forget antiques – the market is fickle along with storage costs and all sorts of other problems.

    People should have been looking at the stamp and coin markets. And no, not the cheap crap stuff either.

    Small, easy to store, certification and standard grading assures you are buying genuine items too.

    The increase in value of some of these items has been unreal over the recent past.

    Not only that, but the hobbies are fun and educational.

    Some countries may have a decline in collecting, but others are booming.

    And what is even more interesting is the mix of people in stamp collecting. The USA, Europe, Australia and New Zealand seem to be filled with old people (men) and dying clubs.

    China has a huge number of collectors and they are young.

    Japan is surprising too. The last two national stamp shows I attended in Japan had a huge number of young people there and what was surprising was the number of young women looking and buying.

    • philmbuff says:

      I concur. I took my late father’s collection to a specialist recently expecting to be offered several hundred pounds for the good stuff, or maybe the whole lot. (I’m in the UK.)
      The expert looked through the collection and gave it his full attention. He liked one of the Swiss sets and offered me £10 for it…
      He wasn’t interested in first-day covers, saying that there were far too many available and anyone who wanted one already had it. All the people in the market were sellers. He was in his mid 70s and all the other customers I saw (there weren’t many) were men who were even older…
      My father had a good collection of Guernsey wartime stamps, as my mother was born there just before the German invasion. The expert was interested, but only because letters to German addresses with Guernsey postmarks are of value. Of course I didn’t have any…
      He then asked if I had any Chinese stamps, saying that stamp collecting in China had only been legalised comparatively recently and therefore a large new market existed for Chinese stamps. Sadly my father had no Chinese stamps…
      I asked him to make me an offer for the whole collection, hoping by then I might get £50, my expectations having been reduced by the earlier conversation. He declined to make an offer, pointing out it would take a huge amount of time to process the number of stamps involved, and showed me the amount of unprocessed collections he already had.
      He then offered me £10 for the confectionery tin in which my father kept his unprocessed stamps, saying it would be of sentimental value to his wife. I declined…
      All in all, a chastening and eye opening experience. Old things aren’t worth what we think they are.

Comments are closed.