Where’s the commercial property meltdown?

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Katie Martin (0:36)

Thank Pushkin.

This time last year, all the cool kids were worrying about a commercial real estate crash. We just had a US banking crisis, no less, and massively higher interest rates. So the big concern was that it was all gonna fall apart and end in tears. Well, we are still waiting. Today on the show, we're asking, it's kind of creaking, but is commercial property actually fine?

This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the Financial Times in London, and I'm joined by crypto tormentor and property market supremo, Joshua Oliver. Thanks for joining us.

Joshua Oliver (1:21)

Thank you, Katie.

Katie Martin (1:21)

I promise this won't hurt a bit. No.

We are gonna talk about crypto a little bit towards the end of the show, so stay tuned for that. But first of all, yeah, dude, where is my property crash?

Joshua Oliver (1:33)

I feel as though, for the last year, I have been an informal counselor to various people in the FT and elsewhere in terms of their anxiety about the coming commercial property crash.

Katie Martin (1:46)

Right.

Joshua Oliver (1:47)

Because everyone has the same question, where is it? Um, partly this is right about 2008, and I think people are very, very, very inclined to fight the last war in markets as in everything.

And so if there are kind of similar signs and symptoms, people like default to, oh my God, it's gonna be exactly the same.

Katie Martin (2:06)

Yes, bad things happen in banking. And then the price of my primary asset in my life, the most expensive thing I own falls to the floor. So you think, hang on, that's not gonna happen again, is it?

Joshua Oliver (2:16)

And you have these sort of related, but not quite the same issues of residential property and commercial property, which are very much tied together, but it's not exactly the same story. The thing about property, right, is what is the price of something until it has been sold? So commercial property or residential property can have as many problems as it like, and the sort of theoretical price can move around, but there is no way really of knowing until deals get done.

And there have been like very, very, very few commercial property transactions by historical standards in the last year.

Katie Martin (2:53)

Yeah, so let's flesh that out a bit, right, because yeah, people like, whoever the owners are, they're institutional investors or they're private equity companies. I mean, who are they?

Joshua Oliver (3:01)

Absolutely everybody you can imagine, right? So institutional investors, your pension fund, dear listener, probably owns a bunch, would like to sell a bunch, but it can't because it can't get the liquidity because there are no deals, whole other story.

You know, super rich people own loads of property.

Katie Martin (3:17)

They're just not selling the property.

Joshua Oliver (3:18)

Well, it's the same as if you have your house, right? You know, in the last year, the housing market in the UK, at least, in most countries has been a bit crap. So, if you were thinking about, you know, if you've been thinking, oh, maybe I should sell my house, it's probably gone up in value, might be a good time to move, you're probably in the last year thinking, oh, actually, I probably won't get a very good price this year, let's wait till next year or the year after when I feel like I'm going to get a good price.

And that's basically the same logic as the commercial property market, right? If you don't think you're going to get a good price and you can afford to wait, you will wait. And that is primarily what's been happening. Obviously, you know, the fault in that strategy is if you can't afford to wait. And, you know, if you have some reason that you need to sell your house or you have some reason that you need to sell your office building. Those reasons are usually debt-related. And obviously, most commercial property carries debt on it. Most time, unlike your mortgage, right, the debt is not being paid down incrementally over time. It will just have one big refinancing at the end.