Still Early Innings: Why the Commercial Real Estate Cycle Has More Runway Than the Calendar Suggests

For most of my career, the commercial real estate cycle ran on a predictable clock. Roughly ten years of expansion, a correction, a period of repair, then the next expansion. You could underwrite against that rhythm and be close enough. That clock stopped working around 2020.

To assess where we actually stand, I reviewed the macroeconomic picture and the property market data on America's Commercial Real Estate Show with Ryan Severino, CFA, the Chief Economist and Head of Research for the U.S. at BGO. Ryan has been a guest on the show for years, he teaches economics at Columbia and NYU, and he tends to arrive with a view that differs from the consensus.

We are six years past the pandemic recession, which by any historical standard should put us deep into a mature expansion. The data says otherwise, and that gap between the calendar and the conditions is what owners, investors, and lenders should understand about this market right now.

The Rain Delay Cycle: Six Years In and Still Early

Ryan describes this expansion as a baseball game that keeps getting rained out. We get a few innings in, everyone goes home, and the pitchers and catchers warm up again. A pandemic, an inflation shock met by aggressive central bank tightening worldwide, a trade war, then an actual war. Four disruptions in five years, each one sending the economy back to the clubhouse.

That history explains the absence of the usual late cycle signals. When an expansion is late in its life, three things show up in the data. All three are missing today.

• Debt Levels: Leverage across the economy should be sitting high this deep into a recovery. Businesses and households spent much of the last five years absorbing shocks, so that buildup never happened.
• Labor Market: A mature expansion produces an overheating labor market, with wage pressure and hiring competition running well ahead of productivity. Today's labor market looks nothing like that.
• Use of Leverage: Excessive leverage in investment activity is the classic late cycle tell. In commercial real estate, the last several years have been characterized by discipline on the debt side.

Ryan's read: an early to mid cycle expansion wearing a six-year-old timestamp, with more runway ahead than the calendar would suggest.

Rates and Inflation: A Speed Bump, Not a Roadblock

This is where the disruptions show up most clearly. Through the latter part of 2024 we were on a clear disinflation trend, uneven but consistent in direction. Trade policy interrupted it, and the conflict in Iran interrupted it again. Ryan estimates those events are adding 30 to 60 basis points to the long end of the curve, depending on the model you run.

Without them, he thinks we would be much closer to the Fed's target, the Fed might still be cutting, and the 10-year Treasury would likely be flirting with the low fours or slightly below. Instead we sit in the mid fours. His view is that the 10-year has difficulty moving far off 4% on economic fundamentals alone, so the question is which end of a reasonable range we occupy. Right now it is the higher end.

Some context for anyone in this business who is under 40. The 10-year Treasury has been consistently below 5% for about a quarter of a century, so we have a generation and a half of professionals who have never operated with the long end above 5%. To them, the mid fours feel uncomfortably high. My first property carried a 17% interest rate. The industry made money then and it will make money now. You sharpen your pencil, underwrite honestly, and stop waiting for a rate environment that was itself the anomaly.

The Supply Side Has Quietly Rewritten the Cycle

Here is the shift I find most consequential, and one I have not seen before in my decades in this business. Historically, real estate cycles turned because we got over our skis and built too much. The 1980s and 1990s are textbook cases, and through the global financial crisis most of the downside risk in commercial real estate originated on the supply side.

That stopped holding 15 or 16 years ago, and today it holds less than ever. Both in absolute terms and relative to existing inventory, Ryan says we have never been in a more benign supply environment. Elevated construction costs and higher interest rates have done their work, and the industrial and apartment pipelines have both come down notably. Two consequences follow.

• Demand Carries More Weight: With supply muted, demand becomes the dominant variable in performance. Economic growth and job creation now bear more directly on your rent roll than they did when new competitive product was the bigger threat.
• Recovery Needs Less Fuel: A supply-heavy market requires a significant upshift in demand to absorb the overhang. That requirement is gone. Across many markets and property types, a marginal improvement in demand is now enough to compress vacancy, stabilize rents, and get net operating income growing again.

The Contrarian Case for Office

Ryan makes a point I agree with completely: the people who have done best in this business were willing to be contrarian on a property type, a market, or a capital structure. He called retail correctly for the better part of 15 years while the popular narrative insisted it was finished. He now sees office setting up the same way.

The mechanics resemble what retail went through. Supply growth has effectively stopped, and obsolete, uncompetitive inventory is coming offline permanently, whether it is razed or converted to another use. With outsized demand no longer a prerequisite, a market with a shrinking denominator and modestly improving absorption can turn faster than the consensus expects.

I am seeing this in our own book of business. At the end of this week I am bringing a 17-story tower to market at $64 per square foot. It costs more than that per foot just to build out the space inside it. Deals like that do not exist in a market that has priced office correctly. For the groups willing to underwrite the building rather than the headline, this window should produce some of the best returns of the decade.

Recovery Out of Order

Ryan's closing observation is the one I would ask you to remember. In a normal cycle, capital markets recover first. The Fed cuts, the short end falls, pricing stabilizes, and transaction volume returns. Space market fundamentals lag, because businesses need time to regain the confidence to hire and expand.

This cycle inverted that sequence. Fundamentals are recovering first, driven by the supply picture above, while elevated long-term rates hold the capital markets in check. That capital markets recovery has been delayed rather than canceled. Pair it with a macro expansion that still has room to run and you get a different setup for the back half of this cycle. Ryan points to the dot-com recession as precedent: we lost millions of jobs, fundamentals performed poorly, and the capital markets powered through anyway.

Final Thoughts: A Wider Window Than It Looks

There is a relative value argument here as well. With equity valuations rich by most measures, including the cyclically adjusted price to earnings ratio, and capital crowding into anything carrying an AI label, real estate looks attractive against both its own cycle history and other asset classes. The crowd is somewhere else, which has usually been a good sign.

The absence of new supply is what widens the window. When nobody is building, the opportunity to buy well stays open longer than it does when competitors are racing you to deliver product. And today's rate is a temporary condition of ownership. If you buy right, you refinance or pay the debt down. The basis you lock in is permanent. The coupon is not.

Optimize Your Commercial Real Estate Positioning

Every market cycle creates challenges and opportunities. Business owners who plan early, investors who stay disciplined, lenders who lean in thoughtfully, and agents who continuously improve will be best positioned to succeed in 2026 and beyond. If you'd like to discuss any of these strategies in more detail, feel free to reach out.

Whether you are acquiring while the window is open, evaluating a disposition against where this cycle is headed, or repositioning an asset that needs a new use, Bull Realty provides the specialized market intelligence needed to execute clean transactions. Contact our Investment Advisory team today to discuss how the current supply and rate environment affects the value of your specific asset.

Michael Bull, CCIM
Michael@BullRealty.com
404-876-1640 x 101
https://www.bullrealty.com