Commercial Real Estate ‘Crisis’ Looming for U.S.: Chart of Day

So lately, I’ve been getting bored of the consistent banter by the media about gold’s rise, despite being quite bullish on gold myself. The bubble is definitely starting to foam – easily seen by the outrageous contrast in headlines. For example one day there will be a headline like “Dollar plunge leads to increase in gold prices”, then the next day the headline will be “Dollar rebound unconvincing to investors as they flee to gold”. It feels just like when oil made new highs every day up to about $147. It’s all quite boring after a while.

So instead of really paying attention to the media on gold, I’ve been looking at the second big theme I’ve been focusing on – commercial real estate. The chart above is from Bloomberg and it shows just how bad the commercial real estate market is right now. My take on this is that the recent increase in corporate profits have to do with cutting costs, and this includes rent. I’ve read about how all these companies have started selling their real estate. Recent case in point (actually just from today) is HSBC divesting their headquarters in London for 772.5 pounds [HSBC Sells Its Group Headquarters]. Simple rule is that when things, from stocks to real estate, are sold, their market value decreases. From economics class - it’s like when you sell something, supply goes up and price goes down given a fixed demand curve.

Anyways, my take on this is that as companies continue to cut costs in the face of slower economic growth, commercial real estate will continue to shrivel. Negatively affected industries are obviously financial companies that have significant commercial real estate loans, construction companies (maybe), and Real Estate Investment Trusts, or otherwise known as REITs. Right now I’m not really sure of the overall impact on the economy from this fall of commercial real estate, since it’s not like every Average Joe/Jane out there owns commercial real estate. However, it’s definitely another major macro theme out there that people have pushed aside in the wake of the “Gold Rush”.