I’ve worked in the field of commercial real estate for about 20 years and I don’t think that there is a bubble in commercial real estate, although there is cause for concern.
In general, in this cycle, lenders have been more cautious about construction lending (with the exception of condos, which aren’t considered commercial real estate). Supply/demand balance for office, retail, and industrial space is much better than it is in the residential sector. I can’t think of a major market with a huge inventory of vacant office, retail, or industrial space.
The bubble in residential real estate will probably have some effect in commercial real estate as mortgage companies, real estate agents, title companies, etc., downsize, but I don’t think the effect will be large.
In general I think that commercial real estate buying tends to be less emotional than single family buying. There are a lot more people involved in a decision to buy a 50-story high rise office building, and at least a few of these people are usually thinking straight – or they have been in this cycle.
I do see cause for concern. Yields on commercial real estate have been driven down to very low levels, precisely because there are so many people lined-up to buy that 50-story high rise. If interest rates rise a great deal, and the economy slows, there will be a lot of investors “upside down” on their commercial real estate investments.
If you wanted to make money in commercial real estate you may have missed your chance. The major REIT funds have registered impressive gains over the last 3-5 years. Going forward it’s unlikely that they will do as well. Vanguard has a REIT fund, and it’s done pretty well over the recent past.