Property Cycle

The property cycle is the recurring pattern of expansion, oversupply, decline and recovery in real estate markets. Rents, vacancy, construction and prices move through it at different speeds. Gross rent multipliers move with it too, which is why a GRM that looks normal in one phase can look expensive in another.

In expansions, prices tend to outrun rents and GRMs rise. In downturns, prices tend to fall faster than rents and GRMs compress. A multiplier that matches today's comps can still sit near the top or bottom of the cycle for that market.

Investors who hold for many years will likely buy and sell at different points in the cycle. Buying at a low multiple near a trough and selling near a high one adds to the return. The reverse can erase years of rent. Knowing roughly where a market sits helps decide how much weight to put on the current GRM.

Further reading: Property Cycle on Wikipedia.