The clicks versus bricks trade is also playing out in the commercial real estate (“CRE”) market. On one side you have a booming industrial segment and on the other side you have retail which is getting crushed. This bifurcation is getting more pronounced at a time when the overall CRE is exhibiting signs of a bubble that’s about to pop.

A stunning eight-year boom in the commercial real estate sector has finally run out of steam. The Commercial Property Price Index (CPPI) measures values across five major property sectors: Industrial; Multi-family; Lodging; Office; and Retail. After collapsing nearly 40% during the financial crisis, the CPPI went on to double from its May 2009 low of 61.2 before eventually peaking at 126.9 last August. It has stalled around that level ever since. Meanwhile, CRE loans at banks in the United States have reached a record of $4.3 trillion – a level that’s 11% higher than during the peak of the prior bubble. Given that CRE leverage contributed to the near-collapse of the financial system during the last crisis, banks are concerned and starting to withdraw financing. Smaller regional banks that specialize in CRE are particularly vulnerable if the value of the underlying collateral for those loans erodes.

The fact that the CPPI index has plateaued reflects diverging fortunes within the overall CRE market. Today’s report will focus on the two extremes: the booming industrial sector and the plunging retail sector . . .

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