It’s football season which means sports sections of every newspaper is talking about the favorite in different football games. The one that has me thinking about this at the moment though is Arizona vs. UCLA where Arizona is apparently a 6.5 point underdog. This reminded me that this doesn’t mean that handicappers think that UCLA is a better team by nearly a touchdown. It simply means that betting dollars break even between the teams at this line.
The same is true of CRE. Rental rates are not a sign of which buildings are better or worse. Rents don’t necessarily reflect a more desirable labor market. Rents don’t necessarily reflect “hot” markets even. Rents are simply a reflection of where the money is flowing. Money often flows in waves together. Groupthink sets in and suddenly everyone moves the same direction almost “just because.”
The “best” or “hottest” real estate market may not be the one with rents going up fastest or highest. Those metrics only reflect demand (which is often but not always correlated to quality) which can be just as easily be manipulated by marketing or a good story.