Unprecedented circumstances present challenges in understanding our place within national and local commercial real estate market trends. 

Interest rates, inflation and a potential recession lurking around the next corner are just a few of the factors leading to uncertainty. 

Still, developers, economists and investors turn to market reports to monitor activity and determine the stage of the nationwide market.

One example is the Mueller Real Estate Monitor Report created by Glenn Mueller at the University of Denver Burns School of Real Estate and Construction Management. This report monitors four property types within 54 metropolitan areas of the nation — apartments, industrial, office and retail. The report also breaks down market cycles into four phases — recovery, expansion, hyper supply and recession. These cycles offer a tool to help make decisions about investments and exit strategies.

Here’s a look at the four phases in detail:

Phase one — recovery: This is considered the beginning or bottom of the cycle. This is when the market has been in an oversupply from new construction or decreased demand in growth. This is when the oversupply is starting to stabilize and correct itself. Vacancy rates are dropping, and the market is starting to trend upwards. 

Phase two — expansion: This is the phase in which vacancy rates continue to decline and developers see rents rise. This is when planning for future development begins. Market research helps in securing loans for new development. Rents continue to increase even as vacancy rates decrease. This is where supply and demand grow at the same rates. 

Phase three —  hyper supply: At this phase, the market starts to shift, which can happen fast. There’s less demand while more supply is in the works. Suppliers compete to fill the oversupply, and rents become a bartering chip in filling spaces. Rental growth slows, vacancy rates increase and rents begin to drop. 

Phase four — recession: The final stage of the cycle features a high supply and plummeting demand. Developers and landlords must act aggressively in pricing to try to keep vacancy rates as low as possible. Rents decrease, market movement is slow, property values are deflated, new development eventually ceases and the market begins to reset itself. 

How do the markets today compare from two years ago? In comparing the fourth quarter of 2021 to the fourth quarter of 2019, there’s been surprising little change with a couple of exceptions

While office has stayed stagnant bordering the recovery and expansion phases, industrial and multi-family continue to spread between expansion and hyper supply. 

On the other hand, retail went from a strong expansion phase in the fourth quarter of 2019 to the bottom of hyper supply and into a recession phase as of the fourth quarter of 2021. Is this an effect from the influx of online shoppers over the past couple of years? Will retail stabilize and find its way back into an expansion phase?

Inevitably, more shifts will come. The question is when and for what property types? 

With the boom of multi-family development underway nationwide and within the local market, my guess is there will be a hyper supply of multi-family developments and apartments, and this property type will drop into the recession phase next.