Usually things are related to a certain degree. I don't see a direct related impact between the two, though.
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How might the U.S. stock market impact the commercial real estate market?
We have been investing in U.S. real estate for three years. We do not follow the stock market too closely, but like many people, we have noticed that it has been volatile recently. How might this impact the commercial real estate market?
Answers
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Stock market strength, in and of itself, should not have a significant impact on the real estate market, unless it is a good reflection on the U.S. economy and general economic trends and forecasts. In general, while the stock market has gone way up in the last year or two, real estate values, rents and the like have not nearly kept up. However, when a big market move is reflective of a major change in the economy, that would have an impact on the real estate market. The two most important factors typically influencing the real estate market on a macro basis are economic growth, job creation, and rising or falling interest rates. If the economy becomes very weak, employment weakens significantly and interest rates increase significantly, then one would think the real estate market will weaken. This is what happened in 2008 and going into prior real estate market swoons. These factors are much more reliable than stock market gyrations, which often reflect investors' emotions, reaction to world geopolitical events and other things that do not affect real estate fundamentals.
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We do not follow the U.S. stock markets and only review and keep up with the daily activities. Our investors and us do not usually follow U.S. market trends versus real estate trends. Real estate is a completely different breed of investment and structuring for us. We would always put our money in real estate rather than any U.S. stock shares.
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In the past, virtually all real estate downturns occurred because of overbuilding. Since 2000, real estate has become a part of the "corporate" world. It has been dislocated by fluctuations in the cross-border currency and LIBOR exchanges. Real estate can be impacted by a downturn in the stock market. Effects of such a downturn may be felt in the luxury single-family market and in family businesses. No one can say that real estate is immune from the overall economy, but you should take into account the funds flowing into assets and debt from overseas. I would recommend assessing the staying power of owned assets and stress testing prospective new acquisitions.
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