In our world, the above is also true. If you’re long on offices, then the asset class is due a bouceback and if you’ve a sizeable interest in data centres then this is very much not a bubble (and if it is, it’s only the good kind).
However, if you’ve been as successful as Blackstone has over the years then it is worth listening to what the company has to say.
Speaking at the Goldman Sachs 2025 US Financial Services Conference last week Jon Gray, chief operating officer of Blackstone, said that while commercial real estate has had a tough 3.5 year run, the recovery is starting to take place.
“Well, it's been a difficult 3.5 years, no question about it. COVID hurt the office market. You had this huge step function increase in cost of capital. So cap rates went up a bunch, values came under pressure. And investors, not surprisingly, don't feel great because they haven't had a great experience during this period of time.
But when you look under the hood, the pillars of a recovery are coming closer, right? So you've seen values fall. This is definitely not your bubble asset class, that's for sure. And yet underlying demand for housing will continue, logistics for going to a resort hotel. So it's an asset class that has fallen out of favour, but has long-term strong demand profile.”
Gray is of course right, demand for housing, logistics and hotels doesn’t look like changing any time good, so the medium to long-term fundamentals look pretty rosy.
“Supply is down almost 2/3, new starts in terms of logistics and rental housing, which takes time to play out, but is very beneficial. Cost of capital, base rates down, spreads down, borrowing costs are probably down about 40% from their wides a couple of years ago. And you're beginning to see transaction activity pick up. It can take some time, but it certainly feels like we're getting closer.”
This is another important point, supply can’t keep up with demand in many real estate classes.
Gray rounded out his real estate commentary by saying:
“And so I think for us, we have focused on these -- the picture that's coming, and we're trying to invest ahead of it. So not a surprise. We've been privatizing a bunch of REITs. We announced a commercial real estate REIT in Hawaii, Alexander & Baldwin this week for $2.3 billion. This reflects our view of real estate and what we do believe will be a coming recovery.”
By Patrick Whyte
