How many more years till this cycle peaks?

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From Ben Breslau
Managing Director
Americas Research

We have a tendency to track data day to day, week to week and month to month, but what about the longer term outlook?

At the Jones Lang LaSalle Investor Conference, we asked attendees how long they thought the current cycle would last. 58% of investor respondents think the cycle will last 3 more years. That would bring us to late 2016.

EconomicCyclePeaks_chart

According to the National Bureau for Economic Research, the body that officially determines cycle dates, this expansion began officially in March of 2009, after a very deep recession that coincided with the financial crisis. We always thought this recovery would be longer and slower than most, and it has been so far, flirting with but not confidently reaching “escape velocity.” The rule of thumb people often use for cycles is 7-10 year, and based on the past three cycles that rule of thumb is accurate. Interestingly, the average expansion cycle of the past 150 years in the US is only 3.2 years.

We think this cycle, which has been heavily “medicated” by the Fed, will last another 3-4 years. Capital flows and to a lesser extent market fundamentals will be broadly positive for the property sector during that time. However, we also expect abnormally high volatility along the way due to a variety of policy risks, including the ability of the Fed to exit this great monetary experiment without breaking the momentum and spooking markets.

Good luck Janet Yellen! Cycle timing has important implications on acquisition, hold, and disposition strategies. It might be better at this point to stay with more core assets that can be held for 8-10 years, or look for value add or opportunistic plays that can be turned around and in 2-3 years, rather than the typical 5-7 year hold for value add investments and funds that could end up straddling the cycle.

Just some food for thought.  Happy holidays and happy and healthy new year everyone!

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