US real estate – a pandemic of just a cold?

Julian Brigden at MI2 Partners says brisk suburban and mortgage activity suggests residential real estate is in rude health, but warns with finance tightening and weak urban activity, momentum might not last. Meanwhile, he says, cash flow and debt are huge problems for the commercial real estate sector, while city office space could be impaired for years to come as firms embrace the new normal. Like the broad market, some real estate assets have rebounded sharply, driven by Fed liquidity, fiscal stimulus and a narrative of recovery, explains Brigden, yet the reality is that narrative is mostly a function of the rate of change in the numbers, not their level or longer-term prospects. Unfortunately, he says, at some point, that trajectory will flatten, and underneath the hood, all is not well. Admittedly, says Brigden, a few sectors are currently strong, such as suburban COVID boltholes, but even here he says much of the apparent strength seems to be a function of limited inventory, the delayed spring market and some of the lowest single-family mortgage rates ever. If credit availability doesn’t revert to prior levels quickly, says Bridgen, it can’t be maintained. And that’s the better news, he says, because when it comes to the retail and office sectors, real estate is a train wreck. Perhaps the Federal Reserve will eventually design a programme for that market too, says Brigden, but finding a one-size-fits-all solution for a $16trillon-plus, highly location-specific market won’t be easy