What 120 Years of Market Cycles Teach CRE Professionals

Commercial real estate has never moved in a straight line. Periods of rapid growth give way to corrections, and corrections eventually turn into recoveries. As the oldest commercial real estate brokerage Los Angeles can point to, DAUM has operated through more than a century of those swings, and the lessons from that long view apply to anyone who buys, sells, leases or manages property today.

Founded in 1904 by W.H. Daum, Los Angeles' first commercial real estate brokerage has seen the region transform from a fast-growing frontier city into one of the world's largest economies. The patterns that repeat across those decades offer practical guidance for professionals and their clients.

The Nature of Market Cycles

Economists describe the business cycle as the recurring expansion and contraction of economic activity. Real estate follows its own version, often lagging the broader economy because buildings take years to plan and construct. A typical property cycle moves through four phases:

1. Recovery, when vacancy is high but beginning to decline and new construction is minimal
2. Expansion, when demand grows, rents rise and developers start new projects
3. Hypersupply, when new buildings deliver faster than demand absorbs them
4. Recession, when vacancy climbs, rents soften and transaction activity slows

The length and intensity of each phase varies, and different property types can be in different phases at the same time. Industrial, office, retail and multi-family each respond to their own demand drivers.

Lessons From the Oldest Commercial Real Estate Brokerage Los Angeles Has Known

Southern California has experienced booms tied to population growth, oil, aerospace, entertainment, trade and technology, as well as downturns tied to national recessions, defense cutbacks, financial crises and public health disruptions. Through each period, a few principles have held up well.

Lesson One: No Phase Lasts Forever

The most consistent mistake in real estate is assuming current conditions will continue indefinitely. During expansions, buyers may stretch underwriting because rents seem certain to keep rising. During downturns, owners may sell good assets at the bottom because they cannot imagine a https://daumcommercial.com/ recovery. Long experience shows that both extremes tend to correct.

For professionals, the takeaway is to stress-test decisions against different scenarios. What happens to a deal if rents flatten, if interest rates change, or if a major tenant leaves? Planning for a range of outcomes protects clients from being caught off guard.

Lesson Two: Location Fundamentals Outlast Trends

Trends come and go, but certain location characteristics retain value through cycles. Properties near transportation infrastructure, population centers and established employment hubs tend to recover sooner after a downturn. In Southern California, proximity to the ports, major freeways and dense labor markets has repeatedly supported industrial demand.

That does not mean secondary locations should be ignored. They often offer value and room for growth. It does mean that investors and occupiers should understand which fundamentals support a location and how durable those factors are likely to be.

Lesson Three: Relationships and Information Compound

Firms and individuals who maintain relationships through good times and bad are better positioned when markets turn. Owners remember who gave candid advice during a difficult period. Tenants return to brokers who protected their interests. Market knowledge built over many cycles helps professionals recognize patterns earlier.

Practical habits that support this include:

• Tracking leasing and sales activity consistently, not only when a deal is active
• Staying in contact with clients between transactions
• Documenting lessons from past downturns and recoveries
• Sharing honest assessments, even when the news is not what clients want to hear

Applying the Long View Today

The current market includes its own mix of challenges and opportunities. Office use patterns have changed, industrial demand has normalized after an unusually intense period, retail has continued to evolve, and capital markets remain sensitive to interest rates. Each of these shifts is significant, but none is entirely without precedent.

Professionals who understand history can help clients respond thoughtfully rather than reactively. That might mean negotiating flexibility into an office lease, acquiring well-located industrial property during a softer period, or repositioning a retail center to match how people shop now.

Frequently Asked Questions

How long does a typical real estate cycle last?

There is no fixed length. Cycles have ranged from several years to more than a decade, depending on economic conditions, interest rates, construction activity and property type.

Do all property types move through cycles at the same time?

No. Industrial, office, retail and multi-family can be in different phases simultaneously because they respond to different demand drivers.

How can tenants benefit from understanding market cycles?

Tenants who know where the market stands can time lease decisions, negotiate stronger concessions in softer periods, and secure flexibility in tighter ones.

More than a century of market history makes one point clear: cycles are inevitable, but outcomes depend on preparation. CRE professionals who combine current data with a long-term perspective are best equipped to guide clients through whatever the next phase brings.