Commercial real estate boom continues (update)

Echoing my comments from last month: "U.S. housing starts have almost doubled in the past 5 years, and according to Case Shiller, housing prices have recovered a bit more than half of their recession-era losses. But the recovery of the residential real estate market pales in comparison to the boom in commercial real estate, where prices have recovered substantially all of their recession-era losses and are rising at double-digit rates."

Repeating the comments from this month's Co-Star report on commercial real estate:

Demand continued to outpace supply across most of the major property types, supporting lower vacancies, rising rents and continued investor interest in CRE. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—increased by 1% and 0.7%, respectively, in the month of November 2014, contributing to annual gains of 9.9% and 14.8%, respectively, for the 12 months ending in November 2014.

Net absorption for the three major property types—office, retail, and industrial—climbed to 476 million square feet for the full year of 2014, a 22% increase from 2013.

It just doesn't get much better. Sustained, double-digit growth in commercial property prices for the past five years tells us that the U.S. economy has emerged intact from the devastation of the Great Recession.

If this keeps up, we're going to be hearing talk of emerging inflation!

The chart above is my version of the Co-Star indices. The Value-Weighted index of commercial property prices is now breaking new high ground. We most likely haven't seen the end of this good news.

Is it all surprising that REITS (e.g., VNQ) have returned 137% over the past five years? (The S&P 500 has returned only 97% over the same period.)